Australian House Prices Are Severely and Seriously Unaffordable

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Australian house prices are severely and seriously unaffordable…Pink Monday in the U.S. costs 79k jobs…the decline and fall of consumer credit and its effect on prices…and more!

Stocks in the U.S. were up overnight. The only really positive news on the day was that existing home sales in the U.S. were up 6.5%. It was unexpected news. A lot of short sales and foreclosure sales boosted the market.

See. Markets work if you let prices function. Median house prices have fallen over 15% in the U.S. in the last year, according to the National Association of Realtors. The median price of US$175,400 is obviously starting to clear some of the inventory over-hang. If prices fall even more, you can expect more buyers to come in off the sidelines and back into the market.

The alternative is to keep those new buyers out of the market by propping up prices through various government-backed lending initiatives. If you want to make homes more affordable, you should let home prices adjust lower, to a level that reflects tighter credit. How hard is it to figure out that if you take away copious amounts of credit from the housing market (in Australia or America) prices are going to fall?

But is that such a bad thing? Well, it is if you own a house and have a large mortgage on it. But let’s consider a new study on global housing affordability by Performance Urban Planning. The report concluded that Australia has the most unaffordable housing of all the nations surveyed. Not only that, but according to the report, Australia doesn’t even have a single urban area in which housing is merely “moderately unaffordable.”

Now before you write in defending the honour of Australia’s housing market, let’s be clear what the survey’s designers consider unaffordable. They use a ratio of Median House Price to Median Household income. A house is “Affordable” if the ratio is 3.0 or less. It’s “Moderately unaffordable” if the ratio is 3.1 to 4.0. It’s “Seriously Unaffordable” if the ratio is 4.1 to 5.0. And it’s “Severely Unaffordable” if the ratio is 5.1 or more.

Australia sports a ratio of 6.3, which is both “Severely Unaffordable” and “Seriously Daloob.” New Zealand comes in next t 5.7, followed by Ireland at 5.4 and the U.K. at 5.3. Owing to its large number of metropolitan areas in which there is a wide variety of median prices and incomes, the U.S. nationwide ratio is just 3.2.

Part of the problem in the other countries is that national median incomes and house prices are derived from just a small number of densely populated urban areas. It’s a pretty common occurrence in America to pack up your car, change states, and change jobs. You trade lower wages for a lower cost of living. That may be harder to do in more homogenised labour and housing markets, like, say, Australia.

So is today’s ratio any higher than historically? You bet it is! According to the study, “In recent decades, the Median Multiple has been remarkably similar among the nations surveyed, with median house prices being generally 3.0 or less times median household incomes.”

“This historic affordability relationship continues in many housing markets of the United States and Canada. However, the Median Multiple has escalated sharply in Australia, Ireland, New Zealand and the United Kingdom and in some markets of Canada and the United States.”

There are other ways to measure affordability, of course. But it really comes down to the mortgage payment. Looking at house prices in terms of household earnings and income, then, is the method that makes the most sense to us. And by that measure, Australia has some of the most expensive housing in the world.

In fact, according to the table below, Australia has over a third of the sixty housing markets ranked “Severely Unaffordable” by the survey. Two of the top three “Severely Unaffordable” markets are in Queensland. And eight of the top twenty “Severely Unaffordable” markets are in Australia, according to the survey.

Source: 5th Annual Demographia International Housing Affordability Survey

If you’re in the market for something “Seriously Unaffordable” you should try Bendigo (4.8), Wagga Wagga (4.9). or the goldfields in Ballarat (5.0). The other 24 major urban areas surveyed are either prohibitively expensive, or overvalued, depending on your point of view. So why haven’t Aussie house prices fallen more?

“Unlike the other national markets in the Survey,” the survey surmises, “Australia has thus far been able to avoid material house price declines. It seems likely that, sooner or later, the inherent instability and unsustainability that characterizes bubbles will lead to house price declines in Australia. However, were it possible for Australia to retain its highly over-valued house prices, there would still be a significant cost. Future generations would pay far more for housing than in the past, and Australia’s relative standard of living would decline.”

Far be it for us to suggest that Australia’s love affair with homeownership could be financially ruinous at these prices. Besides, we don’t have to say it when you can see it for yourself in the image below. But the generation psychology of getting rich in property is hard to break. It’s worked for the Boomers. Now everyone thinks it will work. Hmmn.


Source:5th Annual Demographia International Housing Affordability Survey

The other side of the affordability ratio is household incomes. And if the job market data from the U.S. on Monday is a preview of what’s ahead for Australia, median incomes are going to decline for the people who got fired. In the U.S. alone, over 79,000 pink slips were handed out to start the week.

Maybe it will be remembered as “Pink Monday.” Corporations are hoping to stem the rising tide of red ink by slashing jobs. Caterpillar is cutting 20,000 people loose. Sprint Nextel fired 8,000, Home Depot, 7,000. Pfizer is laying of nearly 19,000. And American Express, after reporting an earnings drop of 79%, is sacking 7,000 workers too.

It’s a lot of bad news. But the Amex news shows just how bad things are getting in the real economy. “Our fourth-quarter results reflect an operating environment that was among the harshest we have seen in decades,” Amex CEO Ken Chenault said. Card member purchases declined by ten percent, year-over-year. Amex reported rising late payments, delinquencies, and is expecting larger default rates by its customers.

Do you see what’s happening? Consumers are cutting back their use of credit cards. But even so, they are having trouble servicing their outstanding credit card debt. Households have a cash-flow problem too. They too, are overleveraged and have to reduce the amount of debt they are carrying.

The only way to do that is to cut spending. Thus a double whammy for the retail economy. With one hand, households cut spending, damaging business profits. With the other hand, businesses lay off workers, further reducing household income. And on the cycle goes.

The cycle of rising unemployment, negative earnings news, and recession is obviously a big downer for the stock market. Of course, as we write that, stocks are up on the day. But in a credit depression, asset values fall faster than government efforts to reinflate the money supply.

As we pointed out last week, the value of credit outstanding dwarfs the patchwork efforts of various government spending programs to prop up banks and house prices. We’d expect weaker stock prices, falling house prices (yes, even with interest rate cuts from the RBA), and the build up of a big inflation trade. More on that tomorrow.

Dan Denning

for The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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Comments

  1. Who will pay for welfare housing if you and I lose our jobs and/or our other income? Not me. I don’t own a rental property. The answer is anyone that does own a rental property (and of course their lenders). Bill and Dan repeatedly argue that market prices will drop to what people living though a long term credit depression will be able to afford.

    Dan refers to Bendigo and Ballarat. I hope that residential accommodation near the old Victoria gold diggings does well as gold mining in those districts kicks the economy there into gear.

    Dan also refers to Wagga Wagga. With 2 military bases, a university campus , a large investment by Cargill Meats, good agricultural prices and a bunch of farmers who have adapted (somewhat) to a drier climate the town is seemingly recession proof. As with most regional centres, Wagga Wagga includes a growing population of welfare recipients who bring the median family income level down to the 40K mark (and probably below this mark).

    For the purpose of this exercise , we should be careful about the statistical underpinnings of the survey if we are including the incomes of welfare recipients in Housing Commission owned or Centrelink subsidised accommodation. These people are not generally in the housing market. Working families with 2 basic incomes may find the $200K regional centre house to be quite affordable (though possibly not cheap).

    There will be a generational exodus from the big cities to more affordable regional centres but I don’t expect real estate prices in regional centres to rise as a consequence. The credit depression will pull down prices in all markets.

    The trick of course is to bring your capital city income with you to a regional centre.

    Coffee Addict
    January 27, 2009
  2. Hey Dan great column as always.
    I have always been puzzled that so many people regard rising property values as a “good thing”.

    As far as I can see, a house is a consumption item, what else can you do with one (ultimately) except live in it. Imagine how much easier the life of a typical family would be if they could get a house in a reasonable suburb of Sydney or Melbourne for $200,000 or less (about three times median earnings by my guess).

    What concerns me is that when this bubble finally starts to deflate, the only solution to the “housing affordability crisis”, Santa Rudd will be there with Other Peoples Money to “help”. Although I guess he and his helpers are doing that already with the ridiculous First Home Buyers Grant, best understood as a direct transfer from working and middle class taxpayers to rich property developers.

  3. CA: Very good points. As for bringing the income from the City to the regional areas, I can only think of two ways:
    – mobile office
    – outposted Gov. jobs

    It’s going to get real messy isn’t it.

    For a while I have been wondering, what with all the Gov. interventions to save mortgagees and whatnot, whether in the longrun a person would be better off with a house now or not. I understand and completely agree with all the current arguments against buying a house right now. The X factor that we truly cannot predict however is Government intervention, and its effects.

    Wait and see I guess!

  4. Dan is correct ! letting housing drop to a real level of income versus price ratio would be a great thing, but I dont see good old human nature letting that one go with out a huge fight on the part of the real estate industry, they do a vested interest in talking it up ” ( telling lots and lots of lies) they have nice fat commision checks to get, so they are not about to throw out the golden goose.

    ( I should know as I have a real estate licence) the REI have a stake in keeping the average schmuck suckered for a as long as possible, but I see real estate in NZ has tanked…..gone down the plug hole actually, its a headin down folks !…………yeeeeeha ! come on baby ! anyway WHEN RE comes down in Aus, it will give all my friends the chance to buy RE at a good prices.

    about time !

  5. It certainly will be interesting to see where house prices go. I expect the same direction as employment, down I think its not the direction of house prices that should be questioned but how far down will they go.

    I expect that the number of houses to market will increase and buying interest to decrease. Just to make that clear that means there will be a shortage, of buyers. Next to be realised will be its not the number of overall people versus houses that determine a market the real supply demand is number of houses on market versus number of buyers, I’m not sure why some dont see this simple point.

    The UK has been an interesting “Housing Shortage” market to watch collapse and I expect it will play out the same here. The market goes from a buying feeding frenzy fuelled by easy credit, to where did all the buyers go. As listings rise and buyers are no where to be found the same rubbish about oh we arent like US will be widely spruiked by the industry. As prices slowly deflate Industry groups will shout its just a slight correction. Finally just like the US UK Spain Ireland NZ etc etc the public finally say well who would have thought that a real estate bubble could happen in Australia.

    Highly geared investment property owners are sitting like a rabbit in the headlights the car is fast approaching but they insist they are as safe as houses.

    When everyone knows that something is a great, never loose money, sure thing investment, then by its nature its over bought and over priced.
    Just ask anyone the way to be rich is buy a house, just dont tell a pom or a yank.

  6. Didn’t people originally leave Britian and Ireland because it was crowded and expensive and nobody could afford a garden, while Australia was uncrowded and cheap.

    Well at least there’s still the sun I suppose.

  7. I don’t think a mass exodus from the cities is going to be based on affordable housing in the medium term. Cities have jobs, and if you’ve ever tried to live in a regional center you’d know that it’s hard going even with an average job. I was forced to move from Lismore 5 years ago due to a lack of opportunities to Brisbane. Especially with the impacts on farming and mining jobs. I can’t see people running from the cities unless there are next to no jobs or opportunities, period.

    Although there is a housing “shortage” in Australia it’s mainly because we don’t live in our families pockets like many other cultures do and Australians used to generations ago. I think the current 30 somethings living at home were the first sign of the coming housing price plunge.

    The smash and grab on retires super last year is starting to flowing onto housing prices slowly. But it’s the baby boomers set to cop the full force of the economic depression this year, with more layoffs, established businesses going under and continued financial uncertainty. That’s when the real trouble is sure to start.

    But like I keep repeating to my friends it’s not an economic crisis it’s a “correction”.

  8. Isn’t it so obivious which way house prices are headed, that every time you see the FHO ads on TV you get angry.

    To those that say well if prices fall then I just wont sell, thats great but not everyone will be so lucky and forced sales in your area will reprice your home.

    I found this recent Australian report quiet sobering, here is a summary, I hope its ok to post. Rising unemployment this year is likely to almost double the number of households at risk of forced sale or foreclosure, erasing the effects of falling interest rates and petrol prices. The number of borrowers under mortgage stress, described as those having to reprioritise expenditure or refinance to make repayments, will rise by 46% to 929,000 by July, from the current level. Those under severe stress, who are behind in repayments or trying to sell or being foreclosed, will increase 87% to 302,000 by July. We are going to see a lot of people who get unemployed but can’t get reemployed quickly and are going to have to make a hard decision about whether they sell their property. Unemployment to rise to 5% by July and 7% by the end of 2009. Property values in turn were likely to fall because of the larger numbers of people who are forced to put their house on the market.

    So remember housing shortage, no housing bubble. Or is it no housing shortage, housing bubble. I think we are about to find out.

    BlackSwans&Economics
    January 28, 2009
  9. Pete….The argument for owning a modest house in the right location when all the investment and market timing issues are set aside (which are difficult and arguable to predict) is that a house is not a piece of paper that may or may not have future value. shelter is a basic necessity.. and yes there will be deflation, inflation, temporary oversupply or whatever. I appreciate these are investment pages and economy took over from community in the bull market, before survival mode now starts to kick in and bring some reality to those who have not experienced hardship.There are better apparent investments than housing and I would not enter the housing market as an “investor”. A change of mentality to survival mode of preserving capital and lifestyle choices is important.Everyone still thinks they will somehow make money in a period of calamity as they are smarter than others and read and analyse everything …not sure the evidence supports this.I can tell from the various informed opinions even on this site, and differing constructive conclusions (i mean that sincerely) that many informed among you are still going to get burnt. Not doing too good myself.
    One argument for gold is that is has some intrinsic value…historically true and much better than paper promises if there is little return and total capital exposure in a real crisis.i’m not big on gold but see the attraction, although you cant live in it or eat it. My only real point is that if you dont own any bricks amd morter at all, then look at the basic shelter in other ways than economic and investment perspectives. If you can manage to get a house that ticks all the boxes,(includes employment) that you propose to and would want to live in then my advice is to work towards that goal in this climate especially but I don’t suggest any timing of the market only to put aside pure “investment” decisions. If you do that it will not matter in 10 years but you wont be holding only pieces of paper.
    Just a thought but clearly not “investment” advice which is still the prevailing mindset that will burn many.

  10. Thanks Gerry

    Unfortunately for some a house is still an investment – an investment of future earnings if you need a loan.

    How much future earnings you invest in a house depends on how much you have at the moment and how much the house costs. If you can increase how much you have at the moment (saving/investing) and/or reduce the price of the house, then you will rely a lot less on future earnings.

    As with all loans, of course there is also the consideration of interest rates.

    Now with our future seeming quite shaky and uncertain, it seems unwise to invest any significant future earnings to anything that will not either
    a) make you more money, and/or
    b) save you money, and/or
    c) allow you to easily liquidate to purchase necessities.

    (Note that purchasing a house makes the ‘shelter’ part of ‘c)’ redundant, however you still have to pay rates, house maintenance and so on.)

    I could probably add a ‘d) retain the value of your money’ which would seem important to readers here.

    I guess I really have been describing Gold…but it makes sense, right? I would think that shares, property, etc could also fit well here if we were in different times.

    And yes the elephant in the room here is whether you would even need to get a loan to purchase a house anyway. I would need one, but for someone who would not, then this is a different story altogether.

  11. So are Aussie houses overpriced? Will we see a crash????

  12. Actually looking at the coloured graph, Sydney was “seriously unaffordable” ever since the 80’s. I have no idea what that means!

  13. Pete, let me put my old engineering hat on for a few minutes (i.e. pick the data apart) and throw a few things up in the air:

    1. I see no point in talking about an average or median price in Sydney. The city covers too much area and there are vast differences in lifestyle and incomes. As demographics experts have pointed out on numerous occasions we need to break Sydney up into a few areas to get a good grasp on properties prices, but nobody seems to do that much. No use trying to find common ground between Hunters Hill and Camperdown. (in engineering terms there is no baseline)

    2. I would suggest there is no use looking at Sydney property prices as far back the 1980’s simply because some suburbs did not even exist back then. Sydney was a lot different in the 1980’s and Mental As Anything was big.

    3. The graph is flawed I would say..because if it says Sydney was “seriously unaffordable” from the 1980’s how could people keep buying homes? How can you have a definition like that and yet show homes prices kept increasing? It is a bit like saying something is in decline but then showing a graph showing the exact opposite.

    The problem with property data is always the same, the property industry massage the data one way to suit their argument and the doom crowd massage it the other way. Somewhere in the middle is the truth I suspect.

  14. Hi Greg,

    1. Good point
    2. Haha, another good point.
    3. In a feeble defence of the graph and the strange affordability rating system, perhaps it could be that Sydney’s median prices were unaffordable, and got worse with the credit bubble and all the investment bankers over time? Perhaps Mental As Anything bought up half the properties in the CBD ;)

    I’m with you on the property data manipulation…it’s never a clear picture is it. I still find some statistics useful as indicators, but not as ‘proof’.

  15. Highly geared property investors are like rabbits in the headlights, the car is fast approaching but they insist they are as safe as houses.

    When everyone knows an investment is a sure thing, you cant go wrong, it will make you rich, never loses value, then by its very nature its over bought and over priced. Crowded out..

    Just ask anyone, your mum, dad, brother, sister, a stranger in the street, Rudd or Swan, even my working dog knows the way to get rich is to buy a few houses in the big smoke. If you have family living in UK or US perhaps dont ask them because its different here in Australia, bigger better houses, there is a shortage, we love houses more than anyone, prices never fall or maybe its just the long hours we spend in the sun.

    Thank goodness prices of farms like mine havent suffered from this affluenza.

    BlackSwans&Economics
    January 28, 2009
  16. Belatedly appending coffee addict’s comments on Wagga. Dual income was as much a feature of country city/town life as it was in many capitals, welfare migration is another and that displaced older housing stocks leaving the younger generation building in the regional cities where availability of services continues to displace people from smaller towns without industry or mining income over and above farming. The biggest issue I saw in terms of price was the inefficiency and high price to build. City builders just weren’t interested in investing in more advanced pre-fabrication and costs were excessive. Housing prefab technology is one worthy area for govt industry investment and one that meets most EVA preconditions and where we could be competitive global niche markets.

  17. Good response Paul and appreciate your position and logic. A lot of dealers will make money out of gold as the focus continues for sound reasons and hopefully others who invest will time things right.The one modest ideally located house ownership aim was just a way of thinking for those without a house. If you invest in gold be sure you have possession of it.I have seen past scandals.(there are more Bernies out there) A certificate of ownership is a piece of paper too. Just keep it in mind and keep control of your assets.

  18. Pete..I am with you regarding the property data. I suck it all in and then try and make some sense out of it..if I can.

  19. bravo coffee addict. as usual to the point and correct. also i love the use of the word depression, and it is a depression, not a mamby pamby recession. i fear there is much worse to come in the cities, but it does a group on non thinkers good to get whapped on the head for doing just that. personal note to dan, you cant eat gold. :)

  20. so with interest rates being cut pretty severely, what is going to happen in the next 12-18 months?

    With both rents and property prices. Can both fall at the same time?

    I have mortgage payment which is below what it costs to rent. would i be better off keeping the mortgage, or going onto the rental market?

    (assuming that if i sold the property, it would be for price which yields me a profit(even modest))

  21. Hey Barney – I bought real estate based on a lifestyle decision (sick of renting) but to do so had to put the ‘life savings’ into it… there was no thought of selling in the short term for capital gain. But with little savings outside of the house, the prospect of a property crash had me considering selling up, and going back to renting…

    Anyway, I’m NOT selling up after factoring in the ‘value’ of not having to move home, and particularly if you intend to rent for a period and then buy back in when the investment timing is right – the high fees associated with selling and then buying again, moving costs and just the time spent searching for the right place has a $ value… it adds up. I would sit tight, particularly as you say you pay less in mortgage repayments than rent… in the long run I think rents will track inflation = up.

  22. Cam: why will rents track inflation up?

    I can think of some scenarios that would contradict rising rents:
    – no rise in wages
    – market flooded with houses to rent
    – landlords who can’t afford the capital loss of a house are forced into renting
    – unemployment forces some renters to move into other rental properties, share housing/consolidated housing
    – empty speculator houses increase supply(bought to renovate and then sell, not ever rented) need tenants because the speculator does not want to take a capital loss

    (You may be surprised at the number of ’empty’ houses in Australia. That is, houses with zero occupants. Yes, some people find real estate investing(?) easier without tenants and just relying on capital growth / renovations).

    Basically, rents track ‘wages’ not inflation. If wages are inflated, people can pay more rent. People do not borrow money to pay rent, therefore unless they get paid a lot, the credit bubble has no effect on rents.

    Consider this: If you are a landlord and you put a property for rent at $X…and no-one can afford it, what do you do? Do you sit there hoping someone will come along and pay? No, you are forced to drop your price because having no tenants is costing you money every single day.

    I know this is akin to hearsay, but I have seen graphs (inflation adjusted)that show rent prices vs. interest rates, over the entire 80’s, 90’s, 00’s for Australia’s capital cities. You would think there would be a change in rents when the double digit interest rates of the 80’s hit, surely?
    Nope! Rents were almost flat, the whole way with only the most minor deviations.

    Simply:
    Rents correlate with wages.
    House prices correlate with the availability of capital.

  23. Oh and conversely, rents would rise if:
    – wages rise (is that likely?)
    – employment rises (more monetary competition for houses)
    – the cost of living decreases (people have a bit more to spend)

    I would have listed ‘monetary inflation’ as a reason for rents to rise, but as stated previously, this would not be a correlation unless wages also rose. Typically wages do rise over time, especially in prosperous times and in-line with inflation. However in a recession I do not think that pay-rises are likely, especially with reported inflation to be low (regardless of the reality).

    In a deflating environment where money is worth more (somehow), I would expect that rents may even decrease slightly, depending on whether landlords are leveraged or not.

    Note: I am a renter, but you should consider my points critically for what they are worth, not my bias.

  24. I totally agree with Pat. And Barney, yes of course, both RENT and PROPERTY prices can GO DOWN.

    It’s already been happening in Sydney’s Eastern suburbs and other established suburbs. My investment unit has had offers going down by 7.8% from last year, and yet I’m renting it out to a new tenant at $37/week lower rent than the previous tenant (who’s financing business did poorly last year).

    The only tenants from whom landlords can squeeze impossible $1,000/week rents from these days, are tenants who do not need to rent anymore. Tenants who were earning heaps, but are now in jail !!

    The best hedge for landlords these days is to fight hard to keep good tenants who pay well. That way landlords would avoid any cashflow problems with their investment loans.

  25. A response to Petes comments about stimuli that could increase rents. Upwards pressure on rents can also be provided by rental subsidies. I lived for a while in Darwin during an era when houses were apparently in short supply, and the major employer, the govt, gave public servants a rental subsidy to offset the price of rents. Of course every time the subsidy increased, because the committee who deliberated these things decided rents had increased substantially, rents also increased again by about the amount of the subsidy.
    In the correction which is coming, if people are forced to sell their homes, which will be likely for over leveraged households where jobs are lost, then the demand for rental property should increase, and therefore so should rents. The same economic circumstances which forced the house sales will put pressure on the same people when it comes to paying their rent, and the govts (state and national) may step in and provide more subsidies more widely……which is also likely to increase the overall price of rents.

  26. I have moved to Brisbane QLD from Sydney and have had problems getting a rental property in QLD around 6 kilometres from CBD, in Sydney I had to drop my rent down and still have had no one to rent it out my house in Gladesville.

  27. i’m curious as to the effect all the flooding up north and the fires down south will have on the cost of building and housing demand. More than 800 homes down south and and unknown number up north will have builders and building supplies in high demand for the next year or two. After Mackays floods last year they are still finishing repairs and builders are still hard to get your hands on.
    If this is going to be a yearly pattern of mass home destruction i think we are going to be looking at a very unpredicatable and strange cycle in housing with home owners going broke while others with insurance checks are building and yet others still locked out.
    I do agree with job loss numbers going up rents can’t go too high but of course the government will give assistance to renters helping to drive prices up further. Remember this is a package to help keep things the same and all those making decisions are making them to suit their own idea of success they are not thinking much beond their own portfolios and bugger the causalties, there can be nothing gained by them if houses drop and rents go down.

  28. Kathy. Crooks are attracted to disaster areas like bees to honey. People who are insured will have to go through the insurance companies. Some others will be at the mercy of the shonks. Prefab homes would be a good option in the circumstances.

    Because the industry is otherwise quite flat, there shouldn’t be any massive price excalations in Melbourne for renovations and like: – but then again it all depends on how the reconstruction is managed. I don’t know about Ingham. Flood mitigation measures can be a lot more expensive and insurability can be more complicated. Traditional Queenslander houses should be mandatory in flood zones me thinks.

    I understand that total damage may be in the vicinity of $500m (based on what an insurance commentator said on TV).

    Coffee Addict
    February 10, 2009
  29. Good discussion.

    One thing that has crossed my mind is that there has to be a natural floor in house prices because of the cost to build which is unlikely to fall unless the cost of labour is driven down which would be unlikely unless unemployment was 10%.

  30. Pete.

    Great analogy re: rent and inflation. I have been pondering this very question for some time. What you propose makes perfect sense.

    bravo!

  31. Thank you so much Dan for your article. It is so hard to find the truth in main steam media, they should be held accountable along with the banks and government for this mess, ultimately caused by the biggest debt-indunced housing bubble the world has EVER seen. Been living in Vancouver for 6 years and similar situation here, real estate industry and developers own the media, and local and provincial governments; but this has not stopped prices declining upward of 15% (as at January 2009) since May 2008! Seems like Oz has been late to the bubble burst party, although the real stats are well hidden there and are simply not reported. There is absolutely no way Oz can escape this one, read up on Japans dark period if you know want to know what will happen to real estate values in the next 10 years. Government assistance will not make one ounce of difference, the debt bubble has burst and money is returning to its rightful owners. If I return before the next election and Rudd extends that stupid first homer buyers grant (and yes, I will be a first home buyer in Oz) then he has lost one vote.

  32. Nicholas, I would argue that cost doesn’t drive value but rather rent and personal income. Maybe someone with more smarts can eleborate on this?

  33. Nicholas, the value of any improvements on a piece of land i.e. a house can be readily valued by a prospective purchaser. What causes bubbles and subsequent busts in housing markets is not the value of the improvements. It is the speculative price paid for the unimproved positional value of the land. Why, as an example, would anyone in their right mind pay 6 million for a small beachfront property with an old shack on it unless there was a belief that the asking price would continue to rise? Things become much clearer when we think in terms of ‘land bubbles’ and not ‘housing bubbles’. We would all be far better off, rich and poor alike, if residential land prices were stable and based on sound economic realities and not on speculation. Fundamental shifts in taxation policy are required to eliminate this speculative land value. Reducing the tax burden from productive activity (income tax, company tax etc) towards taxation based on consumption of natural resources (including collecting revenue from the unimproved value of residential land) would go a long way towards restoring sanity to land prices and therefore the elimination of land driven economic bubbles and busts. Enter the vested interests…

    Robert Stowasser
    February 21, 2009
  34. We all like to think that we have ‘crystal balls’ and intelligence greater than thy neighbour. In agreement with Gerry’s post on 28th Jan, security and shelter was the main purpose of bricks and mortar since adam revealed what was beneath the leaf to eve. Perhaps these humble perceptions must be appreciated once again? The Jewish original idealogy of take this one sheep and return three within 7days bred speculative investors instantly . Live in your home rent your house buy a home and sell a home trade shares gold whichever works for you in a positive way. Research without media influence and remain optimistic, the future is how we as individuals percieve and create it to be. These discussions should be more about translating personal experiences rather than contemplating a negative tommorow.

    william johnstone
    February 25, 2009
  35. Hi all,

    I think one problem we have with looking at home price trends in Australia is that simply housing styles have changed so much. This also applies to comparisons between incomes and housing as well.

    For example back in the 1960’s not all new homes would have had a garage, quite often a basic home was built with a view to adding an extra room when money was available. However if you fast forward to today it is not uncommon for a first home to be 3 bedrooms with a double garage and a family room. So comparing the “average home in the 60’s/70’s to a home now is just a pretty silly comparison in my view. (but plenty of researchers make these comparisons)

    Therefore maybe the only way to know how prices are really moving is to have some data set where you factor in the land price per square meter and then add some type of premium to take into account the typical dwelling used in that area. Maybe this would also give us a clearer view regarding how much influence land prices have on home prices as well?

    Just a thought.

    Greg

  36. I believe that the single biggest cap on the residential housing market is always total annual after tax income of those in the market for a home.

    Over 30 years people were either gifted or found new ways top generate higher incomes. Predominantly this meant working overtime and both parents working. After that point is reached then the only way for people to increase their incomes is natural wage growth. Remember I’m talking about the majority here, not those who have a lot of money to invest etc.

    So if wages cannot keep up with mortgages prices must be contained. It’s a very self correcting phenomenon that is here to stay.

    I’ll be interested to view a residential market and how it performs without any crutches like the first home grant etc.

    The key to future growth in housing is less expensive buildings and that will become an economic imperative

  37. First I would like to quote Wally “If I return before the next election and Rudd extends that stupid first homer buyers grant (and yes, I will be a first home buyer in Oz) then he has lost one vote.” Who should we give our vote to, if all the politician are similar? When they are in opposition, they argue about housing affordability problem, however, when they are in government they tend to do nothing about it. I think this is because the government and the Reserve Bank want people to owe large debt in order to control people’s spending habbit through their monetary policy. If people spend less, due to heavy debt, then they want people to spend more by lowering the interest rate. If people spend more, and inflation rise, they constraint people’s spending by rising the interest rate.

    If the government want people to own home quicker, then they can release more land quickly. Think about it Australia has very large land area with small population. Every Australian should be able to own their block of land without the need to work 30 years for it.

    Yet again, if you own your own block of land outright, the government and the Reserve Bank can’t control your spending.

  38. We are 6-12 months behind the UK in the property cycle. Look at what happened there, in a similar market that had a “housing shortage … an 18% decline in London property prices over the last 12 months.

    But of course that couldn’t happen here, could it :)

  39. “I’ll be interested to view a residential market and how it performs without any crutches like the first home grant etc.” Real Estate, 27th

    Well, Rudd probably has two choices. He can do an ‘Obama’ and try to save people’s homes if/when/after realty crashes; or he can take the smarter option and a.) maintain downward pressure on low interest rates; and b.) extend the FHBG. Easier and politically smarter to do both the latter. I know that won’t please the goldbugs here, but ‘Real Estate’s’ comment about kicking away the crutches to observe how many Aussies fall over is probably hypothetical. It’s unlikely to happen. Rudd won’t make Bush’s crippling mistakes!~ ;)

    Biker Pete
    March 1, 2009
  40. Very nice article Dan.

    Greg Atkinson, I’m an engineer too, and disagree with your first 3 points.

    1&2. I see a point to talking about a median price for Sydney. Even with growth, there would still be expected to be the same distribution of people, from the lower income to the upper income. Thus, measures of central tendency are useful, especially when that median is compared with income.

    3. Houses that are seriously unaffordable can still be purchased provided that there is credit. It just means that the repayments are higher. As long as enough other people keep thinking that the house prices will keep rising, the phenomenon is self-perpetuating to a point. We had a situation with such a long run that many people forgot their history.

    It’s a lot like any of the popular delusions of crowds. Remember Beanie Babies? They were seriously unaffordable too, people still bought them. For a while. Same with tulips. The truth was not in the middle.

    Your comment on the 26 of Feb is far more prescient. You are right, house sizes have certainly gotten larger. And the actual “needs” are still the same, it’s just that the “wants” have changed and now people confuse “wants” with “needs” (especially my wife!). People aren’t going to suddenly die or get seriously ill or malnourished if they live in a smaller house. When push comes to shove people realize just how minimal their needs really are.

    A quick googling unearthed this very interesting piece of information:

    http://www.rba.gov.au/Speeches/2008/sp_so_270308.html

    House prices have tracked very closely with house construction costs. It is only recently (since 1988) that the house prices have drifted up to double what the cost of the construction is. Perhaps construction materials are somewhat cheaper than they used to be; I suspect the average increase in house size is more than 30%, maybe 60%.

    This means that there is a large latent supply of housing, should push come to shove. Multiple families (most likely, related families) can and will occupy the same houses if stressed, with a lot more comfort than was possible in the 1960s. What this would mean is a lot of potential empty houses, with minimal rental yield and negative capital appreciation. The smart investment decision is then to sell early. This positive feedback loop continues until the house prices get low enough that the rental yield is attractive again. It will likely overshoot.

    What will bring this about is
    1) Poor economic conditions, enough unemployment, lowered real wages.
    2) Long enough plateau or mild decline in house prices, enough to kill the widespread belief that “housing only ever goes up!”, especially in the lending sector. If the lenders tighten credit, it does not matter what the real estate industry or the average person thinks housing will do, because at 7 times income, houses are bought only with credit at such prices.
    3) People trimming their budget or selling their properties in anticipation of 1.

    Looks like we are seeing “1” now. We have “2” as well. “3” is starting to happen.

    Also have a look at the US market. Houses have gotten bigger over time there as well. It certainly hasn’t saved them from the housing bust.

    Note also that house prices dip below house costs. Prior to 1988 this was true more often than not. The key to understanding that is the car market. Rich people pay the construction costs for new cars. Average people pay a used car price, which is way below the new car price (and cost of construction in many cases).

    Unfortunately, the market can be wrong a long time, and nowhere is this more true than in RE (waiting 20 years to buy a house!). However, the patient are as close to being rewarded as they have ever been. 20 years of buildup does not mean that a reckoning will not come, any more than 20 years of tinder buildup meant that a bushfire was never going to happen. It just means that when it does it will be more severe.

  41. ….an 18% decline in London property prices over the last 12 months…..this is true, albeit somewhat massaged: the fact is a lot of the property drops in London and the major cities are in new build properties that have gone up at a rate of knots, the property market stalls, investors in those new flats panic and want to sell quick so drop the price: it happens. I lived in Leeds which like every other UK city was throwing up blocks of trendy cardboard flats (you know, 200sqft for 400k!), people/developers see the financial system going belly up and panic sell, dropping prices to attract a non-existant buyers……hey presto over 45% of new build flats in Leeds are lying empty cause A) no one wants to buy and B) no one wants to rent in a block where half the building is empty. I’m not saying the price drops are in new builds only but it’s these areas that push the figures up to a drop of 18%. Still pretty bad no matter how you look at it…

  42. Dave, regarding the London property market hasn’t the correction been made worse by the tax hike on “non domicile” foreigners living in the U.K? From what I read the top end property market in London was hit hard by this new tax and this dragged down the average house prices across London. (and I would guess the U.K as well)

  43. Russell (8th Feb):
    You said “In the correction which is coming, if people are forced to sell their homes, which will be likely for over leveraged households where jobs are lost, then the demand for rental property should increase, and therefore so should rents.”

    I thought that too initially and it made sense.
    Except for one thing:

    For every house transaction there will be a buyer and a seller.

    For these distressed sellers selling at low prices…who is buying? And why are they buying?

    I think that the buyers will be both FHB’s and investors. Even if rents drop, unless they drop as much as house prices, the returns will still seem worthwhile for investors.

    But you might then ask, how can investors buy houses when there is no money in the markets?

    Well, put simply, if you have to sell a house, you either sell it…or you dont. If you dont sell it, you rent it. If you do sell it, the buyer rents it.

    Therefore there should be no rental shortage, given that reasoning.

    (unless bank foreclosures cannot sell the houses and they sit as empty shells…which we know wont happen because banks will drop the price as low as they have to, eventually. Consider zero-reserve auctions)

  44. Hi Thrifty, Sorry I cannot agree, I stand by my point that Sydney 20-30 years ago was simply another city. How do you massage the data to cover suburbs that did not exist 30 years ago? Sydney is not London or New York, Sydney is still expanding in terms of new housing land. (and is subject to different tax laws, government policies etc) In addition, according to the link you posted the RBA has not got a handle on land prices either and according to the RBA economist “There are no doubt a number of factors that could be contributing to the observed level of land prices, and the relative importance of these is probably best left to experts” and “…the run-up in real housing prices may not be fully explained by demand-side factors and that supply-side ones – especially policies on land usage – may also have played a role.”

    So if you cannot fully explain what is driving up land prices, then how can you make a useful comparison of these prices over time across an expanding city with changing demographics? The answer is you cannot with any accuracy, although people seem to want to. In other words, if we can not explain why a trend is the way it is, then how can we possible say where it is heading next?

    I am not for or against prices going up in Sydney or anywhere else, I just wanted to highlight that the data being used is flawed and subject to misinterpretation. (and can be twisted to suit the property bulls and bears)

  45. In Sydney transport roads are reaching capacity, the roads are full.
    The trains haven’t expanded or upgraded to satisfaction. So inner-city living prices remain high due to accesses. For now until job losses.

  46. Comparing asset classes, realty has performed admirably against the ASX and even cash. Super is barely break-even these days, even if you’re salpacked to the max. By the end of this week, the interest rate will have fallen fifty percent, in less than eight months. Smart FHBs will take the $21K, buy in at around $400K, then lock in a low rate of interest for the longest period possible. Even an 18% fall (if we do follow the UK and US down… and I doubt we will) pales to insignificance when you factor in a 50% reduction in interest… and rising rents! :(

    Biker Pete
    March 3, 2009
  47. Nice one Biker Pete the real estate bull
    “when you factor in a 50% reduction in interest… and rising rents!”

    Lets make some assumptions:
    – interest rates will stay low
    – rents will rise
    – people will stay employed and therefore able to service mortgages and rents
    – capital appreciation in real estate will continue on its current course…forever
    – there will be no tax reform

    While we are at it, let us assume the GFC is over and that real estate in Australia is at a completely affordable level.

    Now that I have made those assumptions I can totally see where you are coming from.

    Consider…if just one of those assumptions is wrong – what does that mean?

    Yes, real estate bulls belong in the loony bin

  48. I am over 60 years old. During the past 30 odd years I have invested my hard earned in both shares, share market funds and real estate rental properties. Over those years I have never made any real long term gains from shares, the share market has without fail always bit me on the bum.
    In 2006 I sold a business to retire and my accountant and my investment manager said start a self managed super fund which I did. They both said invest the money in the stock market but I chose to hold it in cash because of my past experiences.
    I invested a similar sum in residential rental property. Had I have taken notice of the so called “experts” who have more of their interests at heart than mine, I would now have lost 50% of my hard earned by now.
    I am more than happy to hold real estate which has increased 50%. or my cash.
    If you like gambling go to the casino, or the stock exchange theirs not much difference between the two.

  49. Ray perhaps you should join a club with Biker Pete

    I am not 60 years old, but I do understand that investment trends spanning 30 years do NOT equate to investment trends or cycles that will necessarily continue forever.

    If I had a time machine, perhaps I could bring you back a sample from the extravagance of 1929.

    Besides the hundred other counter points already made against the real estate bulls who post here, there are two simple points:

    1) just because a trend is positive for 30 years does not mean it will be for the next 30. Ask the Romans how their empire is doing.

    2) i simply do not care for your great investment stories of yesteryear. Jumping on the speculation bandwagon whilst the biggest credit bubble in history unfolded is no more wise than being a sheep in a flock. More lucky than anything, real estate bulls helped contribute to the problems that the youth are facing today. How about you wait for the real estate bubble to collapse and then you can tell me about how real estate is such a good investment. Seriously, your so called ‘investment’ figures are no better than saying “hey guess what I bet on red four times in a row at the roullette table, and my return was 200% of capital!”

    If you are really a firm believer in real estate – prove to us how wrong we are by buying a beach side holiday home on the coast tomorrow. I’ve heard they’re going at a good price.

    Normally I wouldn’t care about what you RE bulls say on sites like this, however I do really hate the thought that someone might actually think there was something to what you are saying.

  50. Ray perhaps you should befriend Biker Pete

    I am not 60 years old, but I do understand that investment trends spanning 30 years do NOT equate to investment trends or cycles that will necessarily continue forever.

    If I had a time machine, perhaps I could bring you back a sample from the extravagance of 1929.

    Besides the hundred other counter points already made against the real estate bulls who post here, there are two simple points:

    1) just because a trend is positive for 30 years does not mean it will be for the next 30. Ask the Romans how their empire is doing.

    2) i simply do not care for your great investment stories of yesteryear. Jumping on the speculation bandwagon whilst the biggest credit bubble in history unfolded is no more wise than being a sheep in a flock. More lucky than anything, real estate bulls helped contribute to the problems that the youth are facing today. How about you wait for the real estate bubble to collapse and then you can tell me about how real estate is such a good investment.

  51. Pete,

    I just hope you don’t end up renting one of Biker Pete’s places whilst you are riding this out. He doesn’t sound like a very forgiving landlord however you can’t live in a place made of share certificates either. We all have to live somewhere….

  52. Don – yes we all have to live somewhere. It is more the assertion that ‘there will be a shortage of places to live’ that I believe is incorrect.

    Then again, I am not advocating current investment in shares as I think that could be a major folly aswell (depending on the sector you invest in). I haven’t really heard anyone on here saying things like “I have a major shareholding in BHP and RIO and they have performed well for me over the last 8 years”. I guess in the current climate that would already seem stupid. In the not too far future I expect the real estate bulls to feel the same way.

    On a side note I do find it interesting how some people call investing in shares “gambling”. I think if you do not know the market and do not know your company well, then you are gambling (speculating). Shares are not a ‘set and forget’ investment in my opinion. Anyone who does not take an active and continued interest in their investments seems foolish to me.

  53. Hi Pete.

    There is probably nothing wrong with any of Biker Pete’s places. Better to have a landlord that is switched on to the “business” than a set and forget dill who does no maintenance then expects top dollar on sale. No different to the share market really.

    ( Off the subject of real estate, I have absolutely no idea where some of the gold juniors are going in the near to medium term. Perhaps like Biker Pete, holding on to what you know isn’t such a bad strategy IF you can afford to ride a storm out. Speculative but not quite gambling.

    I am OK about holds like ALK and CTO. The market has I think written off the value of ALK’s iron and nickel holdings and never did assign a value for the rare earth or zirconium. I am hoping the Newmont deal puts a floor on how low ALK can go . I am comfortable with a CTO hold because I bought it cheaply and I have no reason not to believe they can’t ramp up production quickly. I never did buy BDG but note their good cash position. With adjoining leases to CGT I would like to see the two companies get together given the superiority of some CGT prospects and the CGT’s better exploration approach. BDG should have learnt from previous mistakes though. A big risk in the sector is management egosgetting in the way of common sense . I am currently trying to analyse where CGT is in more detail. The company is now dominated by major shareholders – a key benefit that doesn’t help much in the area of financial transparency. My gamble here is that the key shareholders will swap notes, determine how deep their pockets are, identify opportunities then pursue a a financial direction that will benefit all the shareholders. But for now its a roller coaster. Cheers)

    Coffee Addict
    March 4, 2009
  54. Hi CA

    Please note that I have no problem with the quality of Biker Pete’s places at all. For all I know he has no mortgages on them and makes decent cash from their rents.

    The issue I have is when people like this take their good fortune of the past and suggest that this will continue into the future. The idea of wisdom being directly correlated with investment success in this respect is laughable to me because anyone could have done what Biker Pete did. It had nothing to do with wisdom as such, and everything to do with an unstable market.

    Even Mr Buffett will have a hard time proving how wise he is in the current and future market environment.

    Real Estate bulls are bullish on capital growth of real estate assets, and rental returns on real estate assets, typically using leverage to achieve a large real estate portfolio. My point is that I think this ‘investment’ approach is very flawed and relies on some significant assumptions of the future. It concerns me that some people might follow their flawed logic because it is the ‘majority voice’ not because sound reasoning.

    As for CGT and the other juniors, I think they are promising. The difference between holding them and any other asset is that all the indicators point to growth in the next few years.

    Management is a tricky one…I dumped some good smallcap oil shares recently partly due to the seemingly excessive payouts to management. It is my opinion that before production targets are ultimately met, management should be taking home the bare minimum pay. Let them profit when everyone else does. It is sad when you see operating capital eaten by management paychecks.

    Operating capital is still a scary factor in all smallcaps…and I suspect the gold juniors have higher than average overheads.

  55. Pete and CA, I am currently a property and stocks turtle. I hope that I can live in my nice hard shell, take a few hits and come out when the nasty bear market has passed. Every now and then I will pop my head out and nibble on some tasty worms but be ready at all times, to pull in my head if danger approaches. In other words, why do any of us try and guess what to do at the moment?…it is chaos out there :) The only thing I am a little bullish about is…be ready to shoot me down…oil. I just figure we are not quite over our little addiction with the black stuff quite yet. (oh and Uranium..I think that was one of your picks CA?)

  56. Greg – one problem with the turtle approach is the notion that assets of all classes are at the beginning of a re-valuation. When this bear market passes, things still wont be the same at all. Perhaps a little bit like Japans 1980’s experience.

    It comes down to present perspective vs. future perspective. Will todays low be considered an extravagant high tomorrow (or in 5 years time).

    Obviously it always comes down to what you think the market will do, and why. The main thing is to continually reasses your position and consider what the market is going to do.

    As for Oil, I am bullish with you on that one. I am waiting for a further stock market scrap before I buy into that though.

  57. Greg: I’m with you on the Oil, but not so sure about the turtle approach. If we are having a huge asset revaluation, perhaps it will be a very long time before prices are like this again.

  58. Pete I think you are right…but I am still hiding in my shell. I do nibble on some of the ETF’s from time to time and on the odd blue chip stock. I would probably be more aggressive if I was not nursing some wounds from last year :)

  59. I’m about 40% gold, 40% cash and 20% other shares at the moment. I’m not really looking to buy until the rally starts…then i’ll buy gold.

    I might even stock up on some nice oil stocks once the rally is over too, or possibly before it starts (depending on whether it even looks like starting).

    It occurs to me that with all this talk of rallies, perhaps we ARE in a rally…? Perhaps it is just not significant and the fact that we are not dropping like a stone completely is the rally itself before a bigger drop? Speculation I guess

  60. THRIFTY, I really do not get where you are coming from endorsing this mind set that the younger generation want bigger better more luxurious items than their parents have worked a life time for. I just want a 2 bedroom apartment big enough to accommodate my wife and first child. We are now living in a 1 bedroom apartment 16km from the city in which my couch is situated right next to my dishwasher.

    We both earn very good money but even if we were stupid enough to believe the rhetoric sprooked by the ‘land rats’ we would pay $300,000 or $580 a week for the honour. Thats on a 25 year loan which we would have to avoid having any more children plus live and raise out current child for several years to come in this apartment. All i want is the opportunity to have a modest backyard for me to spend time with my children something my parents never thought twice about and i have been robbed of in this current environment due to greed.

    The point i make is that generations to come will be punished for an entire generation who has allowed developers to build thousands of apartments that are designed to be cheap and nasty to construct for the soul purpose of maximum profits. It has created an urban sprawl that will be rendered null and void years after these investors have made their millions.

    I don’t mind working hard for anything, i have become very successful b doing just that. I haven’t purchased property in Australia to date as i feel that all i am doing is inevitably rewarding a generation of investors who sort to destroy the younger generation for the benefit of themselves and their retirement. These house prices have destroyed a lot more than peoples finances, there is an entire under current of people feeling detached from the world they grew up in, my generation were lead to believe that if you rent then you are a second class citizen, a failure!!

  61. Perhaps I am a little late to this forum but I’d make a couple of observations
    1. The First Home Buyers grant was NEVER intended to help First Home BUYERS!!! Indeed Michael Matusak quoted figures on ABC radio indicating that almost all the FHBG has gone into the selling price. Indeed i believe his figures are probably still skewed because of the otherwise falling values.
    The MSM and Government are fond of trumpeting how sound our Banks are. The Banks were bailed out once in March 2008 when the Reserve took over a whole lot of mortgages. Admittedly these were ‘First grade” but the necessity was to give the Banks an injection of Cash Reserves. The FHBG was designed to put a prop under the RE market so the the Banks appeared “SOUND”. A significant decline in the RE market combined with a bit more of a tightening in the GFC (say as a result of European Banks falling over) will mean that the Big 4 Banks will fall over. Our big danger lies in our External Account.
    Everything in this economy, including the Big 4 Banks (and all the smaller ones), is leveraged to the eyeballs in Real Estate. The potential for a total disaster here is VERY high. The FHBG was a bailout of tha Banks!!!! Nothing more…nothing less.

    2. I have just joined the 60 year old crowd too. My memory is still pretty good :) Now when i studied Economics, “housing” in the National Accounts was a CONSUMPTION” item. I believe it was during that clown Malcolm Fraser’s term as Prime Minister that, quite suddenly. I found that housing had been moved from “consumption” to “investment”. About the same time our “Overseas Borrowings” became “Capital Inflow”!!!!!!!

    Ah I did buy BHP about 8 to 10 years ago (approximately). I believe the price was about $6 or some such. I didn’t have a lot of money at the time so I am not rich off the proceeds!!!!

    The Outback Oracle
    March 11, 2009
  62. “There is some base-line level of consumption for things like energy, food and water – even in depressions. This base-line consumption is bound to rise, if for no other reason than _population rises over time_. …….. If you want to be sure your money sees the other side of this thing, stick with the necessities.” Chris Mayer, TDR
    Uhhh, something missing from your list of necessities, Chris, unless we’re going to revert to living in trees! :)

    Biker Pete
    March 12, 2009
  63. Biker Pete I am with you on the baseline…in fact it goes for mobile phones and cars as well. The complicated thing is to work out the price baseline as well. For example when coal demand drops so does the price for coal as buyers become the price givers. So first we get a whack from falling demand then another slap across the head when prices fall. The question for me is are we getting close to seeing both baselines being reached? Maybe we are getting close on the demand side…but I feel there is a little bit to go on the price side of things?

  64. How would we develop a housing baseline when the demand varies based on geographic, sociographic, and employment factors? It seems too variable to me.

    Also consider the total rooms available, not just houses. If two strangers need a place to live, it is an assumption that they would live in two separate houses (or even two separate rooms). Sharing houses may become more common over time.

    Then there is the demand/supply issue. If there is high demand in a city, rather than increase supply in that city, perhaps people will move to other cities or to the country. I do not believe that location is fixed at all in this sense, aside from human laziness, resistance to change and employment opportunities.

    If I could get paid double my wage to work in a rural area, i’d be there tomorrow. If I was unemployed and could get a good job in a rural area, i’d also move.

    Thats my inflation adjusted two cents worth…

  65. How would we develop a housing baseline when the demand varies based on geographic, sociographic, and employment factors? It seems too variable to me.

    Also consider the total rooms available, not just houses. If two strangers need a place to live, it is an assumption that they would live in two separate houses (or even two separate rooms). Sharing houses may become more common over time.

    Then there is the demand/supply issue. If there is high demand in a city, rather than increase supply in that city, perhaps people will move to other cities or to the country. I do not believe that location is fixed at all in this sense, aside from human laziness, resistance to change and employment opportunities.

    If I could get paid double my wage to work in a rural area, i’d be there tomorrow. If I was unemployed and could get a good job in a rural area, i’d also move.

  66. How would we develop a housing baseline when the demand varies based on geographic, sociographic, and employment factors? It seems too variable.

    Also consider the total rooms available, not just houses. If two strangers need a place to live, it is an assumption that they would live in two separate houses (or even two separate rooms). Sharing houses may become more common over time.

    Then there is the demand/supply issue. If there is high demand in a city, rather than increase supply in that city, perhaps people will move to other cities or to the country. I do not believe that location is fixed at all in this sense, aside from human laziness, resistance to change and employment opportunities.

  67. Pete for housing I reckon you are right..it is just too complicated. The best I can guess is that around 2002, before the commodities boom, would be a good place to start for the mining states. But this is real finger in the air stuff. As I have mentioned before I just do not think we have enough reliable data to determine property baselines. I once owned a house in inner city Sydney and in spite of the fact that planes got redirected over it when the new runway opened, prices soared…go figure :)

  68. 2002 might be okay for mining, but still very hard to predict. There was that entire town in WA that came undone because BHP closed their mine.

    Was that ‘prices soared’ pun intended ;)

    I hope you did well out of the sale…people are strange creatures

  69. Pete..no pun intended, I am not that clever! But it works well :) Anyway I am with you on the difficulty in picking house prices and baselines, the hot spots often turn out to be duds and areas you thought would not do well become “trendy”.

  70. Still waiting for The Property Crash that has been predicted by the eKEENomists for well over a year, now. Last year both suburbs in which we invest rose, by 1 – 3%. We don’t _need_ capital appreciation, due to high rents and low interest, but it’s interesting that yesterday’s NHSC Report shows a shortage of 202,000 houses right now. With a 20% reduction in building approvals (despite the FHBG) it’s hard to see how you can continue to push a doom’n’gloom picture for realty, Pete. The last of our ‘shared-occupancy’ leases ends early April. Too many problems to take _that_ path again. With queues for any expired lease, the Packed-to-the-Rafters scenario won’t happen again! ;)

    Biker Pete
    March 12, 2009
  71. Biker Pete:
    If there is anything I have learned about these economic problems… things often take longer than expected to break.

    People predicted the 08 financial crisis many years beforehand, but actually picking a firm date is the hard bit.

    Basically it comes down to fundamentals – if there are obvious signs that a crisis will occur, it is then just a matter of timing. In the case of real estate, Australia’s timing has sure been lagging the rest of the world, but the fact that our crash has barely started does not indicate our immunity from it in any way.

    It certainly does not help however when Governments try to prop up the real estate sector with these FHB grants and any amount of market manipulation. Ultimately all this does is further distort the market and lead the way for a bigger crash.

    And worst of all, the people who are getting into the market right now are the people who can least afford to. I think it is shameful of the Gov to fight to keep a bubble alive using youthful naivety as cannon fodder.

  72. Ah, but you’d rather that in their youthful naivety they paid off our rentals, Pete. Can’t argue with that! :) It would also be naive to believe that any market will ever be free of political intervention. An investor needs to factor that in… along with falling interest, rising rents due to reduced construction and a lot of other key factors which make this an evolutionary algorithm, rather than a static one: Keen’s most obvious mathematical flaw. Politicians who wish to remain in power can’t have hundreds of thousands of voters dispossessed of their homes, as GW discovered… ! So despite the alarmist media stories, I’d expect to see FHBGs extended, interest continuing to fall, smart players locking in very low fixed rates, reduction of stamp duty, and families purchasing properties together. As you’ve noted “…if there are obvious signs that a crisis will occur, it is just a matter of timing.” There’s copious data to show an extreme housing shortage, soon; a crisis if there ever was one! ;)

    Biker Pete
    March 13, 2009
  73. I agree with Biker. There is extreme housing shortage.

    But i have a question.

    It seems that this is deliberate and results from strategies used by govt to keep pressure on rents and property prices. Govt seems to use legislated rorts like negative gearing, slow release of land for sale and delayed building approvals and high immigration intake to prop up prices. The result is a housing shortage.

    The question i have is: if it goes too far, wouldn’t there be some kind of communal backlash? Or does the govt already have plans set aside for the wave of homeless such poorly thought out policies will produce?

  74. So many points I disagree with here:
    – how do you factor in governmental intervention when policies change from year to year? Real Estate is hardly a 12 month investment for most people

    – how much do you expect interest rates (mortgage rates) to fall? Do you honestly think the banks will loan below 5% interest? Regardless of what the RBA’s rate is, the banks require a certain rate to meet the risk of the loan. Home owners are far from AAA rated, low risk clients. Also consider how much money the banks borrow from overseas. The lower our RBA rates go, the less worthwhile it is for our banks and especially overseas banks.

    – you are correct about voters, although incorrect about GW, he couldn’t have another term even if the voters wanted him to. Consider how much power the gov. actually has to keep house prices high artificially, without completely destroying the rest of the economy. One way or another real estate prices will fall, taking some banks and other companies with them.

    – the problem as I see it, with all this talk about people locking in low rates and being smart, and this crisis that is occurring – is that having a mortgage is a 25 year commitment. So if rates and gov. grants favour you for a few years, should you ignore the remaining 20 years that you will be in debt? Yes debt will reduce over time, assuming you can make repayments. But you are suggesting that house prices will continue to go up and up, or else this whole idea is a load of nonsense. Do you honestly expect the median house price to be 1million dollars in 10 years (assuming current inflation levels)? All this talk of crisis and housing shortage…is a myth made up by the media, REIA and its cronies.

  75. Yes, we disagree on so many points, Pete. Let’s start with points on which we agree. First, realty as long-term. Agreed… although we have often made immense gains within a two-to-three year period. Those days are over. George W: We agree that he couldn’t have survived, even if he’d been able to stand. Media: Yes, there’s a lot of hype. PerthNow, for example, recently had no less than four separate articles headed: ‘Homes Groan.’ That’s hype all right! :) Agreed there will be minimal capital appreciation in the short term. We’d also agree that these are highly unusual times, which may last for many years. Warnings by TDR, over eighteen months ago, alerted us to this and we bailed on the ASX and converted Super ASX to cash. So despite your fears for us, we have more Super than debt, a lot of top-quality properties in highly desirable suburbs… and cash. We aren’t alone in this. Friends have even _more_ ‘tangible’ assets. We’re all in a position to keep buying more property should it fall… . Now to areas in which we totally disagree: Interest rates _will_ plummet to historical lows. Banks _will_ lend immense amounts to those with assets. Smart operators _will_ lock in for maximum periods possible. Sectors of the property market will experience _immunity._ Rents _will_ continue to rise. (We’re about to raise rents on two homes, by 10% and 12%.) Some large sectors of the community will reach retirement age, _homeless_; unable to pay high rents. What is most amusing on this blog is the bitter vitriol with which many decry the FHBG. Pure fear that realty will survive unscathed; that you picked the wrong horse when all your mounts were given the bullet! :) Loved your closing comment 3rd March, BTW. You’re just full of marshmallowy goodness!!~ ;)

    Biker Pete
    March 13, 2009
  76. Great reading all the above, I have 1 week to go until a property I have a contract on goes unconditional. I am not very educated in matters of the global economy but I dont want to be in the class of”
    youthful naivety as cannon fodder” as Pete so kindly referred to.

    I am 30, with family & currently rent. I have no investments / assets, and a bunch of debts that keep me from being able to save up for a house deposit, so how then could I go wrong assuming the following situations….

    I buy a house for $380K,(3bed,pool,2kms from Sunshine Coast beach) using FHBG as deposit. Later this year (or even now) I fix my my rates & end up paying the same, if not less, than what I pay for rent now.

    Situation 1) property value continues to rise, I resell in 1-2yrs & have some money to re-invest/ go back to renting with some money in bank.

    Situation 2) property value falls. I pay mortgage off at similar amount to renting. Wait for property to go up, resell in 5-10 years. Have some money to re-invest / go back to renting with some money in bank.

    Situation 3) property value falls. I pay mortgage off at similar amount to renting. Property value never gets back to what it is at the moment. 30 years later I finish paying off mortgage & can atleast retire rent-free. (situation 3 hopefully never happens because I think I would go insane living in the 1 place for that long)

    * please, all readers feel free to comment, call me stupid/smart/whatever – I dont like to gamble on anything, but I do need to think about my future for my families sake. If I dont buy now & keep renting & waiting & watching, by the time the market is “perfect” time to buy I may not have the FHBG & definately wont have $10K+ saved up for deposit. I dont want to “miss the boat” with real estate again.

  77. Frankly guys, I am not even considering the houses prices here… I am from Europe here in Australia (around Melbourne) since December. House prices are just unbelievable for the value. The housing standards are way below any that I have seen ever before (even compared to California where they also build wooden houses due to high risk of earthquake what is nowhere here). Even you get better built houses in Finland where most of the houses are wooden.

    Honestly, this is a joke over here as well as that real estate agents say that all houses got cracked due to the dry weather… What? 80cm – 1m concrete on iron-web basis and you can dig half of the ground out and the house will stay as it is. No way I spend a single cent on those bungalows called houses here. I will build myself my own if I will ever, probably waiting a few months-years before buying land since, again, prices compared to other commodities and salaries are nonsense. I could buy land for cash now, but again, prices are unrealistic so I am not going to do this (I prefer low risk so I feel fine until I get just a little bit more than inflation guaranteed – what I get now and I hope that the bank will not collapse; at least no signs yet).

    About the 18% loss in the U.K.: one of my best friends owns a house in London (zone 1, Vauxhall). He had an offer for GBP 650K when he considered selling in 2006. He thought 700K will be okay and waited a bit… he still lives there and the same real estate agent advised him to expect 400K a few days ago. Otherwise it is a nice solid brick home (great for our nasty karaoke nights – we really cannot sing and at least neighbors are not going nuts like they would in block houses).

    Just my two cents, cheers.

  78. Biker Pete: I agree with those things that you stated we agree on

    Depending on your leverage, you may well be in a good position. If you own your properties, then who cares if they fall in value unless you need to sell them. However when leverage comes into play is when things get nasty.

    Consider the assumptions you make:
    a) banks ‘will’ lend you money
    b) interest rates ‘will’ stay low
    c) rents ‘will’ increase
    d) you will not ‘need’ to sell any property at a loss due to liquidity needs

    See, I would think that the best time to buy property (if you are unleveraged) is when interest rates are at their highest, and hence property prices are at their lowest. If you already have capital, that’s fantastic. Although you could also put that money in the bank…for the short-term.

    See, I think people who consider ‘current’ interest rates to be short-termists – people who aren’t looking more than a year or two into the future. This kind of thing isn’t such a problem for personal loans, car loans, etc. But it sure is for buying a house, because that housing loan may span several different interest rate peaks and troughs. Yes, it’s a good idea to start a loan in an interest rate trough. But do you know what kind of a trough this is? Yes, lock in a fixed rate for 5 years if you can…but what happens then? What if you’re still stuck paying off this house, which is in negative equity and a low rental return ratio? And your fixed term expires and you see hefty 20% interest rates?

    Those 20% rates would be tolerable for people entering that market, as prices would be low, and it would be manageable (barely). But for the speculator who bought a house at double that price 5 years earlier, it will feel like 30 or 40% interest rates. Ouch.

    So anyway, i’ll go over your points one at a time, as usual:
    – just because some people will be able to buy in a falling market, does not mean that it will be enough to prop the market up. To think that those people would have so much effect on the market is just a tad arrogant.
    – why will interest rates go lower? if you were a bank, would you loan to anyone at 4%? What if it cost you 3% to loan that money. Is it worth the banks risk to earn 1%? (Nope)
    – maybe banks will not lend to people, especially if they want to increase their reserve ratio compared to loans. The rules changed to lend to people freely, they can change again to restrict lending
    – I do not disagree that smart people would lock in low rates (ignoring that they were not smart when they decided to buy in the first place). Unless you are naive and think they will go lower, why wouldnt you.
    – which sectors will be immune? Gov. buildings? The office of lehman brothers? Everything will come down to negotiation unless it is on a longterm lease contract. Even then, people will move if they are forced to.
    – heres an example of raised rents going wrong: I just moved out of a house that raised its rent, to a cheaper one. That same place raised its rent again, looking to cash in. It’s currently still empty after two months being vacant. Sure, people need a place to live, but most of us aren’t stupid. Landlords who raise rent whenever they can lose the loyalty of their tenants. Greed isn’t something people hold in high esteem.

    As for my closing comment – yes I agree, marshmallows would pad a cell nicely.

  79. FHB Terry:
    I’ll go over your scenario’s with my take on things (note that I take no responsibility for your decisions, this is just my thoughts)

    – Scenario 1: Fantastic if it works for you. This will make you a property speculator. Speculators have done very well for the last seven or eight years. Personally I do not believe that trend will continue.

    – Scenario 2: Speculator talk again, you assume A) property prices will go up again (more than inflation) and B) mortgage repayments will be a similar price to renting…for the medium to long term. What happens if B) is only true for a year? What if you lock in low interest rates for five years…and then interest rates rocket up to 20%? Also consider that rents may drop.

    – Scenario 3: Again, assuming that mortgage rate will be close to rental rate. Question: Why buy a house if you do not plan on staying there for 30 years?

    Overall, I think your scenarios assume a lot of things and you talk like a speculator. This may well be a product of media and your peers – perhaps you need to consider what you are really thinking/saying, and why?

    You make many assumptions. If you truly believe that these assumptions may be likely, or close to correct, then you should take your own advice.

    I am concerned for you that you cannot save for a deposit, yet you wish to purchase a house worth several hundred thousand dollars. It really sounds like you are what banks consider a ‘sub-prime’ borrower. The media seems to have stopped using that term and has taken GFC over again. That does not make the current sub-prime reality any less real.

    I feel for those that worry about ‘missing the boat’, because this causes decisions based on fear. I believe longterm financial decisons should not be emotional (although some investors disagree with that). So many people are scared of missing this boat…but shouldnt because it is land-locked.

    I hope that was of some value to you Terry. I really do feel for you, family means everything, and of course you want to do what seems right. I once read a book that said there are no wrong decisions in life, just different experiences. It was a good book.

  80. Oh, and Sandor: Thank you :)

  81. Well, well… I’m not surprised in the slightest by these figures. If you’ve been around as long as I have, Australia is outrageously expensive whether it be for food and supplies including the humble Australian home. As a retired Real Estate Agent and seeing the rise of prices over the last 20 years, I and my fellow agents over the years can be blamed for artificially stimulating this heavy rise for the Aussie house, and the greedy vendors. I like them have made a bloody bundle selling my houses and apartments back into the market again. At the end of the day, I can’t see it going the other way, as Australian’s as a whole are dumb and will pay huge prices for a over priced item. As long a the market price for houses remains high, we are going to make a bundle. I hope and pray prices don’t go the way they have in the US and UK….thanks Australia!!

  82. One scenario you haven’t considered is that if values fall, you can rent the house to someone else… as soon as _six months_ after you buy it with your FHBG, FHB Terry. You’ll not only enjoy a high rental return, in a locked-in low interest rate environment, but you’ll enjoy many tax write-offs, as well. I’m amused by the four previous posts. Highly creative scenarios written by activists _keen_ to damage the property market. The dead giveaway in many of the posts in this blog, is the unbridled enthusiasm for The Crash. Funniest Home Confession is that of Sam, the Reformed Realtor. Simply _priceless_ imagination and humour!~ ;)

    Biker Pete, ROFLMAO
    March 17, 2009
  83. Remember that house prices held up quite well in Australian during the last recession in the early 1990’s even though unemployment reached quite high levels. So I am wondering why things would be different this time around? The main argument seems to be Australian house prices are expensive compared to the U.S, U.K etc. and that these real estate markets have taken a hit and so ours will to. But how exactly is the price of the home in the U.S or U.K relevant to someone buying a house this week in Sydney? Are they going to say “oh no, it is too expensive let’s slip over th Idaho and snap up a bargain?” Me thinks not…

  84. Greg: I think that is because the prices were not so overinflated then in comparison to wage levels (ratio). I agree that comparing countries definitely falls short of suggesting that there is a correlation between those countries. However I think that we can compare the driving forces behind the falls in those countries, with our driving forces, and then consider the likelihood of these things occurring here in Aus.

    Biker Pete:
    I’ve done my best to make logical arguments (with occassional emotives), so I see no point in arguing with you anymore as your arguments are based on what is happening today, without considering major driving forces that will affect the future. If you think house prices will continue to go up and up as they have in the last 20 years, of course you are entitled to that opinion. Personally I see your logic flawed as you choose to look at the current situation with economic blinkers on, but that is less to do with you and more to do with a generation of people (most of) who think the same things.

    As that Einstein quote goes(something like): ‘Never expect the same people who caused a problem to be able to fix it’

    And incidentally, I see nothing wrong with hoping for a crash if it brings unrealistic, manipulated and inflated prices back towards equilibrium. People will be hurt if prices stay this high, just as people will be hurt if they fall considerably. It is a lose/lose situation for the current market, but falling house prices is a win for future generations.

    Of course everyone is entitled to their opinions…

  85. My parents listed our Central Coast NSW home in late 1989 for $290k. The response was swift and the timing was right. The agent and my father decided to relist it for $340k… Once again within a month there was serious interest. The process repeated and the house was listed for $390k… Within a month or two the best offer was $375k. My parents were caught in the greed trap and decided to wait even though interest rates were rising quickly. In another two or three months or early to mid 1990 my parents sold our house for $275k……. We’re not there yet Greg however the stock market crashed in 1987 and property slowed up in 1990. Our stocks have now crashed again, I wonder whether history will repeat?

    Claytonator
    March 18, 2009
  86. Classic Case Shiller Housing Price Chart,

    When you look at the graph of the Case-Shiller residential real-estate index, an index dating from 1890 to the present and an index which measures the cost of housing in comparison to other goods, the first thing you see is that the 2001 to 2006 bubble stands out like a fifty foot saguaro cactus in a patch of daisies. There simply has never been anything like it before.
    When you know what you are looking at — the biggest bubble in history — it is scary. To be precise, the Case-Shiller Index in its entire 110-year history had never crossed 140 until the recent bubble. In 2006, it reached 210. Every single real-estate bubble in the past has at best been followed by a fall back to at least the 110 level in the postwar era, although the bubble preceding the Great Depression witnessed a fall to 60.
    What this means is that in the best-case scenario, real-estate prices have to fall in the medium to long run by almost half.

  87. Another thought occurred to be that dispute the claim of “rents will rise in the future”

    That is unemployment.

    Consider:
    – unemployed people cannot pay expensive rent, will move to cheaper places.
    – unemployed will move in to group houses to share the rent if they can’t afford anywhere else. This would reduce the total number of rented properties WITH tenants, thus increasing supply of AVAILABLE rental properties
    – unemployed people cannot pay the mortgage of the house they live in! (without other income). This means they will be forced to a) sell, b) rent the house out. Scenario a) means more properties available for investors (someone has to buy the place, or the bank forecloses and they WILL sell it at any cost). Scenario b) means more properties AVAILABLE for rent

    There are probably more examples, but in each of those scenarios, with higher unemployment, there is an increase in the properties AVAILABLE for rent.
    Economics 101: Supply and Demand…excess supply leads to lower prices (more competition).

    Has anyone noticed talk of unemployment in the press this year? (sarcasm)

  88. I agree with biker in that nobody is acknowledging the massive damage that incredibly high house prices are going to do to the next generation (and their inherited economy. Instead of being able to manage housing debt and then take on productive investments they will be stuck for years.

  89. Talking with my niece, in the main street last week, I advised her to take the $21K FHBG and _buy_ rather than rent. Her response? “I get rent subsidies while I’m unemployed, Uncle Pete.” As advised some posts ago, two of our leases end this month. Rent IS going up in these two homes… by 10% and 12%. There is an immense shortage of high-quality houses near the ocean. We have many more applicants than we can accept, Pete. Those who were accepted were as happy as lotto winners…!~ :)

    Biker Pete, SROFLMAO... ;)
    March 18, 2009
  90. Pete I am guessing we will see the top taken off properties in affluent areas (as is already happening), the mining boom towns and places like the Gold Coast. We may even seen prices remain flat for some years but I just can’t see a U.S or U.K style property crash happening here. But you make some good point and if you do not mind I would like to use some of them in my blog..is that okay?

  91. Greg Atkinson, because this is not a typical recession like you have faced in the early 1990s. There were NO global bank failures and massive bailouts / stimulus packages back then. There were also very little of massive financial weapon of destruction (i.e. mortgaged debt obligations dervatives, etc) that are now valued at very little to the dollar back then. There were also no “sudden” freeze in the global credit market and/or close calls to financial system collapse (even hyped ones) back then. It IS different this time. The last 30 years of credit boom has pretty much brainwashed everyone into thinking this recession would just be the same like a decade ago and we will be back in boom-la-la land in no time.

    To think Australia’s economy is isolated from the rest of the world and is fairly “immune” from this GFC is simply naive. There are simply too much misplaced optimism going around. In which I blame the media and those with vested interest parties are responsible for creating it.

  92. Biker Pete: Things must be great in your world. But there is a world outside of that. There are communities, cities, states and then our entire country.
    It appears your sphere of reference is but a tiny speck compared to the economic outlook of our country as a whole. I hope people are aware of that when reading your posts.

    That said, I won’t claim to be Dr Housing Solution. All I see is a problem, and logical reasoning telling me that this trend just cannot continue.

    Something else to consider is that perhaps housing prices won’t fall in nominal terms, due to impending inflation. That means that they will fall in real terms, whilst interest rates would soar and eat everyone alive. I think this really depends on the Governments determination to prop up the housing bubble.

    Greg: You’re welcome to use my comments in your blog. Even the bad ones

    Over and out…

  93. Thanks for your ‘you’re-a-speck-in-the-universe’ perspective, Pete. We spend up to four months traveling every year, so we’re not quite as insulated as you’d like to imagine. It was the price of coastal California, thirty years ago, in fact, which saw us playing Monopoly along whole WA beach fronts for the next decade. Once CGT was introduced, we built houses… .

    You exercise remarkable logic in your posts. Consider your two recent gems: (1) “… your arguments are based on what is happening today, without considering major driving forces that will affect the future…” and (2) “…logical reasoning telling me that this trend just cannot continue.” On one hand your supposition rejects today’s realities, for tomorrow’s possibilities; while you plead ‘logical reasoning’ is then telling _you_ that this can’t continue. That’s not logic… it’s emotional claptrap… and based on the trend in your posts, not just highly fanciful supposition, but extremely optimistic wishful thinking. Here’s a tip, Pete: Property isn’t going to fall into your hands… you have to _work_ to attain wealth. Works for me!! ~Oh…. and Steve, you can use my stuff in your blog, too! ;)

    Biker Pete, RAOFGMAO...
    March 18, 2009
  94. I see HUGE value in this site – But apart from the authors (Bill, Dan and the ever more rabid MG – Gawd bless him!!!) there are only four main contributors – Pete, Biker Pete, Coffee Addict and Greg Atkinson. BORING! Ya’ll might be sa darn honky as they say. But I’ll scoot orf to more fertile fields looking for a slightly more contrarian contrarian’s position for now – Toodle Pip.

  95. Biker Pete: I cannot show you what the future will bring. We both clearly have our own ideas of what will happen in the future, and we base them on different things. You base yours on 30+ years of experience, and I base mine on contrarian readings and what I perceive to be logic.

    I still believe that your experience is completely ‘relative’ to the time period you have experienced, and the notion that just because you have experienced a fairly steady upward trend in real estate in your life-time, does not indicate that this will continue on forever and ever. Of course you dispute that, you’re heavily into real estate and you probably believe that so called investing in real-estate makes you wise.

    As i’ve said before, we are all entitled to our opinions. What concerns me is that your opinion may influence others to sell themselves into this notion of debt = wealth, if its in real estate. And you’re certainly not alone with that point of view. Thats is the truly sad thing about here and now, that every day someone is misinformed, tricked or just plain blind-sided into propping up this real estate cliff-hanger.

    Please reply to this comment and also include something about the positives of ‘equity’ based credit. I couldn’t think of any.

  96. Temjin relax, did I say Australia was immune form the GFC? If you read what I have posted here and on my blog you will see I have been talking about a recession in Australian since last year. However this does not mean Australian will face the same issues as other economies and I am quite aware that all recessions have their own flavor. However as far as I am aware there is no data to suggest that banks in Australia banks have cut back lending for residential property for the average punter. All I am trying to do is focus on facts rather than fear..running around saying the sky is about to fall on the property market is not a fact based discussion. As I have mentioned earlier, there will be areas in Australia that will see major prices falls, but can people really justify claims that we are about to see Australian home prices crash based on facts? (remember our home loans are not the same as the U.S!)

  97. Greg: I’m not trying to gang up on your here, but you said “However as far as I am aware there is no data to suggest that banks in Australia banks have cut back lending for residential property for the average punter.”

    Something worth considering is what happens when banks cut back lending?

    My immediate thought is: Less availability of credit = less ability for people to buy houses = reduced available demand = lower house prices.

    It might be that banks are currently too scared to stop lending in case they spark the fall in real estate themselves.

    I do definitely believe that people can be stupid. People can be collectively stupid too. Even major bank CEOs and Prime Ministers can be stupid. Perhaps the banks are really expecting the Gov. to save our economy, and are holding out for that day.

    And that…is why we are in a lot of trouble.

  98. Pete, feel free to gang up, I am always more than happy to hear counter arguments. I agree that if banks stopped lending we would have a problem and a guess a few developers have already had that problem. Anyway I have posted the other side of the property debate now on the blog, you will probably have some comments I guess ;)

  99. Greg: I really do think that the banks are too scared to stop lending, and are holding out as best they can, putting on fake smiles and touting their rubbish economy speak to try and keep some market confidence.

    Sooner or later the banking/lending house of cards will start to fall and there’ll be no stopping it.

    I think unemployment will be the trigger (foreclosures, etc).

  100. Why bother staying in Australia. As soon as I finish medical school I am out of here !

    I can get a nice house in Germany, get a lot of good training, wait until the bubble bursts then return (10 years later), or maybe travel the world a bit more.

    If I am still alive – I have cancer :(

  101. Dear Sir,
    What are the benefits of buying a house in the current situation, if you have cash, opposed to if you need to get a loan?

    Cameron

  102. Jane: I have felt the same thing: Why stay, especially if the Gov. wants to intervene and prolong the problem?

    I am not sure how green the grass is overseas. People in Oz seem to think it is the best country in the world. Maybe it is patriotism, maybe it is some kind of weird self-love. Or maybe it is great here…for now (it may not be the nicest place to ride out a Depression).

    As for your cancer, I hope you can beat it. My girlfriend had bone cancer and fortunately managed to get rid of it. My Dad had leukaemia and didn’t. Its just one of those things you can’t foretell.

  103. Hi all,

    I was following this thread with great interest as a potential first home owner. Anyway, my mortage broker just informed me that banks will soon (this April) require 10% deposit on homes as opposed to the current 5% (not sure about mortage lenders). Like Pete, I interpreted this as potential lower demand in the near future which I believed will lower property prices. This has made me very uneasy about buying a home anytime soon – especially considering that the first home owners grant will prob. be extended. Anyway, thought you guys might be interested in this bit of info.

  104. Thanks j – that’s an interesting move by the banks

  105. Cameron: An interesting question.

    I know someone close to me in this exact position – they have capital, and they want to buy a house(s) with it, to generate an income.

    My advice to them was: Wait a while.

    My reasoning: House prices will fall – get two in the future for the price of one now.

    Yes, that is assuming house prices fall.

    The difference between buying a house using capital, and getting a loan are pretty straight forward. Using capital, you can still lose money if you are forced to sell at a loss, etc. Using credit (mortgage) you are subject to every single force that affects debt. This also includes not being able to service the debt purely with rental money, if rents drop.

    I’m sure there are plenty more factors I have not added here.

    The main argument I have heard for buying a house with pure capital right now is that “interest rates are too low, my cash isn’t earning anything”.

    Does that mean it is a good idea to sink it into an asset in these economic times?

    People can be such short-termists! Think at least a year or two ahead. Will interest rates be this low next year? After taxes and everything else, how much does the house value need to appreciate this year just to compare with savings in the bank?

    I won’t mention gold…

    Also consider: In a years time, if credit availability drops, who will be in the best position to make purchases? Simply, the people with capital.

    People in this country rely on loans for almost everything. If those loans are hard to come by, people will have to sell at prices that other people can pay, even if that is much lower. And there will always be people that ‘need’ to sell. This chain reaction will force more leveraged people to sell.

    That is why our average mortgage was a bit more than 3 times wages – because that is a serviceable level. People can save a good portion of that kind of money if they really have to. At our current 6-7 times wages, those amounts are not easy for people to save. Most first home buyers arent on 100K+ wages.

    Sorry I went off on a tangent. My point was: If you have significant capital and want to buy real-estate, your best bet is to wait. You will have a lot of power in a credit-starved market.

  106. interesting read so far. Seems like Pete has an answer for everything.

    This is what I have seen so far:
    1. the govt will do whatever it takes to keep property prices from deflating. FHOG, ruddbank, stimulus packages.

    2. the RBA will do whatever it takes to assist. The reserve bank cash rate is at 3.25% and for anyone who borrows over $250K the variable rate loan is sitting at 5.21%. With a cash rate at 3.25% there is room for the RBA to further drop interest rates and they will.
    I agree it will stay low for a short period however people can choose to fix 3 yrs for about 5.3% and 10 yrs for under 7%. (For first home owners who have purchased please consider doing this after a couple more rate drops.)

    3. you are suggesting that we will have a credit starved market. Every over country is slashing interest rates and every other country is stimulating their own economy.
    a credit starved market means that there will be a contraction in the money supply which means you are expecting a depression. With the amount of bailout money going around the world and with printing presses working overtime, I can’t see this happening. I agree the cash has not hit the streets yet however when it does I can only see inflation going rampant. What causes Inflation? an increase in the money supply.

    4. what happens when fiat currency is created out of nothing?
    it devalues the dollar. Why? because there is more cash out there then the day before.
    So when your dollar devalues, it means the prices of goods and services increases.
    This will also mean that wages will increase, in line with goods and services increasing.

    So if you have a loan of $250K today, you will be paying it back off faster because you have borrowed it when your dollar had more value. The loan amount stays the same and you pay it back with more dollars which have inflated.

    Anyhow, plenty more to add but need to head off to work.
    Abit of food for thought.

  107. Kinny:
    You said,”a credit starved market means that there will be a contraction in the money supply which means you are expecting a depression.”

    Yes, you are correct that these things would lead to a Depression. What I am expecting though is either of two extremes:
    1) Depression
    2) Massive inflation (possibly hyperinflation)

    I think that we will eventually get 1) unless we get 2). Even if we get 2), we might still get 1) eventually. Look at Zimbabwe.

    Thats my long-term view. The short-medium term view (3-5 years) looks to me like it will be a Recession/Depression. I am not sure how much the Gov. will try and intervene.

    You said,
    “So when your dollar devalues, it means the prices of goods and services increases.
    This will also mean that wages will increase, in line with goods and services increasing.”

    I think what you have said is a bit misleading, in that these things (goods, services, wages) might not all go up at the same RATE. Goods prices can fluctuate easily, services rates can also change fairly easily, but wages are another matter altogether.

    With wages, consider:
    High unemployment = more competition for jobs. There may be less jobs available too. Maybe we ‘can’ work in sweatshops for low wages? I don’t think that high inflation guarantees higher wages, but I think generally wages would rise. Whether they rise at even close to the same level as inflation is another matter.

    In fact, I generally agree with your points. Except for this one:
    “So if you have a loan of $250K today, you will be paying it back off faster because you have borrowed it when your dollar had more value. The loan amount stays the same and you pay it back with more dollars which have inflated.”

    It is a good theory. In fact, it is a theory that many may be using today, or planning to use tomorrow.

    Consider: If you were a bank, and inflation was 10%, what interest rate would you lend at? The answer is of course ‘10% + risk premium + profit margin’.
    I’m no bank manager, but that seems simple enough. Lets say that rate equals 14%. On a 250K loan, that is $35,000 interest.
    Lets say inflation is even higher and/or banks are more risk averse and/or need more profit, and they set their rates at 20%. For a 250K loan, the interest is: $50,000.
    (Note that is just the INTEREST before any principle is paid. If you cannot pay those amounts for some reason, then you are in trouble).
    For interests sake (no pun intended), lets look at a 400K loan, at 14% interest: $56,000. 20% interest: $80,000.

    Those values are MUCH higher than rents. In fact, they are 3 to 4 times as much as rents. Yes, with the CURRENT market and high inflation, rents might go up. But 3 or 4 times? No. There are in fact legal issues if a landlord even tries that on his tenants.

    (I have already explained why I believe rents will not go up, so I won’t explain that again.)

    Overall, I think one of the things that makes people think they are wise to purchase a house in the current market is the fortnight rents vs mortgage repayments calculation. Remember that this is the CURRENT situation. Interest rates can fluctuate heavily (and we’ve seen them late last century), whilst at the same time wages will not (they might go up, but not by 3 or 4 times).

    Obviously, some people have their minds set on mortgages and have done calculations that seem to perfectly support their decision. I hope some of those people will consider some different scenarios and how they might handle them.

    – Can someone please let me know if I got the bank/interest rate part wrong.

  108. Thanks for your comments Pete.

    Buying a property is one of the biggest commitments you can make in a lifetime. Especially for the first home owner.

    – If you are thinking of purchasing your first home or a home to live in pls factor in a minimum 3% increase into your repayments and make sure you can still live comfortably.

    – Consider locking in all or 2/3rds of your home loan when you believe interest rates have bottomed. (basically if interest rates start moving up and you decide to break out of your fixed ie selling property, paying down loan etc, you will have minimal break costs because the variable rate is higher than your fixed rate.
    The bank would pay next to nothing to break out of the contract).

    – Try and keep informed on the market, especially around what is happening overseas. Don’t take what others say as gospel but be willing to listen and to keep an open mind. DYOR.

    – Make additional payments into your mortgage in good times so that you have a buffer in bad times.

    – Don’t spend more than you can afford to when purchasing your first home. You have plenty of time to upgrade properties in the years to come.
    The less you borrow for your home the faster you can pay it off.

    – It is a buyers market at the moment so price in another 10+% drop when negotiating on a property. i.e advertised for $500K, – 10% = $450K willing to pay, – 10% = offer 405K. Begin negotiations even lower and see what you can get. Don’t be afraid to let the vendor sit it out, 1, 2, 3 weeks when u make ur first offer.

    I hope this helps if you deciding to get into the market.
    If you are sitting on the sidelines I think it would be worth waiting to see how the next 6 – 12 months pans out.

  109. Thanks for the article Dan

    Interesting responses and comment much appreciated too.

    I consider many arguments supporting sustained housing prices in Australia are the stale comment that was pervasive in the US three to four years ago. Some basic retro – surfing of the net provides thousands of urls; try any US county, say “Miami” : “Housing Prices” : “2004” : “2005” which leads to many articles on limited supply, increased immigration, population growth, and the emphatic exhortation of the inevitable and forever upward spiral of house prices.

    “Oh yeah?”

    All that talk now in hindsight largely the “puff” & “hoopla” of the realtors – and essentially bunkum.

    In our Australian context :- house prices do not equalize internationally as easily as for instance the renowned “hamburger index” – as houses do not transport as well as hamburgers.

    (Notwithstanding that a comparable and ubiquitous hamburger from say Guatemala or Guinea Bissau proves to be slightly chill and the tomato and pickle inevitably rather soggy by the time their hamburgers reach our fast-food outlets.)

    In contrast to a “Mighty Mac”, international capital enters and withdraws or equalizes instantaneously; at the click of a keyboard vast amounts of money are transferred about the world.

    The US has always had the cheapest money – borrowings in the US are at wholesale prices, whereas we’ve always paid a premium to cover the idiosyncracy of a (internationally deemed nutty and absurd) welfare politic – that is – a retail ‘plus’ price.

    Mortgage Money Available / Houses = Average House price at the market margin.

    The denominator to that simple equation is clearly at a material risk at wholesale; So how long before those prices are impacted at the Australian retail market.

    ——————————————–

    Then off course – the jobs, jobs, jobs! Those go – and house prices will plummet.

    ——————————————–

    Available ‘Housing Supply’ is an extremely flexible or spongy concept, especially at the Y Generation “still-living-at-home-with-mum-an-dad-dammit” margin¿

  110. Kinny: I agree with your points. Buying a house is a huge commitment.

    It is not my place to tell people they shouldn’t buy a house – every case is different.

    I just hope people will do a variety of sums before they jump in. And I also hope they will take no notice of the hype and nonsense that floats around our country at the moment.

    Financial advisors will have probably played a large part in ruining lives with their X + Y = Z calculations based on the current market. I think it is sad when people don’t think for themselves and instead take this shoddy advice they paid too much for as an ‘expert’ opinion. The only things these guys are experts at is earning their wage.

  111. Housing shortage? Hmmm??? Maybe … But if so it is at least partially government induced. With the upside from goverment’s perspective being that a shortage, be it real or even just perceived, supports the banking and building and real estate and allied industries I’d guess. My case:
    There are loads of older Australians (both singles and couples) who live in three and even four bedroom houses but only really use one bedroom. The other bedrooms are thought of as guest bedrooms and studies and sewing rooms or just plain old storage rooms etc. So there is considerable unused housing capacity available. And much of it is in very desirable locations.
    As these houses are owned by older Australians, they are very often mortgage free. And the Federal government’s current taxation legislation quite actively discourages better utilization of this spare capacity by virtue of the fact that the moment any portion of a Principal Place of Residence/Main Residence is rented out, the property becomes exposed to Capital Gains Tax (albeit on a prorata basis) – Which is a very unattractive proposition for any owner of a mortgage free property who wants to rent out their spare capacity. Because there is no bank mortgage interest component expense to be claimed as a deduction. But owner would probably have to beware of their state government lining up to stiff them for land tax depending on just what their specific financial circumstances were I’d imagine – Although I’m not specifically checked that. But irrespective, there is lots of downside potential and very limitted upside potential, taxation wise. Especially considering that many of these houses were bought many years ago and the capital growth component on them since then has been huge. So huge in fact, that even if prices DID drop by 50%, many of the owners would still be being hurt by Capital Gains Tax on sale.
    So Australians generally, are encouraged to borrow more, and to build more excess capacity, typically in the less central and less convenient locations, rather than to better utilize the surplus capacity that already exists in more desirable locations. I certainly regard that as malinvestment.
    I have sent an email to all Federal Cabinert Ministers I could think of who might be vaguely interested in this – Just on the off chance they hadn’t already realized??? And did get a reply back saying it would be considered as part of a future general review of the housing situation in Australia.
    My punt: Expect no change. The various industry lobby groups I mention sound very powerful to me. And I’ve yet to hear even one Australian politician so much as mouth the word malinvestment in relation to anything ever – Just doesn’t seem to be part of politicians’ vocabulary?
    On a slightly different but still related topic, it would appear that the populations of both the UK and Canada were under the impressions that they had housing shortages until their housing markets tanked. (Anyone who is interested should be able to Google that for themselves – Sorry, but I checked it a good while ago and don’t feel the need to do it again.) I didn’t check Ireland or Spain though if anyone else feels enthusiastic. And the US wasn’t of much interest to me as they pretty obviously seemed to have over supplied anyway.

  112. Just a general comment on house prices going down: In normal business cycles house prices go down. Any long term Australian property owner knows this from their own experience if nothing else.
    Drops of 10 and 15 and 20% (Ouch) are quite common and typically don’t rebound quickly at all. That’s just the property market.
    Of course “this time” might not be a normal business cycle. Maybe they’ll go WAY down – Rather than just the usual percent. Maybe they’ll not especially go down at all – Because of all the hocus pocus fixes the various world governments are coming up with (Including Australia’s FHOG). I simply don’t know. Although I will admit that a nice comfortable 15% drop would make me feel happier because my personal read is that they are overpriced.
    But what I do strongly suspect is that if I own a respectable albeit lower end price bracket property close to all the usual desired services and amenities that I’m not so heavily in hock on that nothing I’m not insured against can ever force me to sell, then the property will make me a buck long term at least.
    Especially if I was a bit canny when I bought it and looked for some “extra” potential – Like the ability to pretty easily add a bedroom or even two to a low set (very cheaply!) – Or turn that extra tiolet and large rumpus room underneath into a genuine granny’s flat maybe?
    Not that I necessarily want to execute the potential – That would cost me capital and destroy said potential for the next bloke. But I definitely do want it to be there for me to point out to the next buyer.
    Real estate agents talk about location. But location is only half the story. You want location AND you want potential.
    Beware of TOO much of the location factor – You’ll pay a premium for it and you’ll be sitting on a property the average Joe simply can’t afford – Namely, you’ll be trying to sell to a very small, very select, very picky portion of the market.
    Apart from the REAL desperado boondocks no amenities/no facilities/no nothing suburbs, it is those location based higher end properties that crash and burn the most when slumps come. Of course, you can make a LOT of money from them by buying them and maybe tarting them up a bit and flipping them in boom years when 10% of the population has become convinced it is their right to aspire to properties with water views and jetties and triple car tiled garages and open fireplaces and fully ducted air conditioning and dedicated media rooms and floor to ceiling marbled bathrooms and kitchens to die for with redundant benchspace in the middle of the same – Rather than the usual 2% – Just don’t get caught with one that is only halfway tarted up when the market slumps. (Big Ouch)
    While I’m giving out totally unsolicited and presumably unwanted advice: Don’t buy a nice basic property as an investment if it has lots of big trees close to the house. They might look pretty BUT: They drop leaves in your gutters and rust them out them. They grow roots in your sewerage and drainage pipes – Yuk and $$$$. They break in storms and damage your house – A lot! And some councils won’t even let you cut them out. Not that you’d desperately want to – Because that costs a LOT too! Palms are the best of a bad breed if you are in area where they grow. But big Eucalypts – Never.

  113. Has anyone heard about real estate developers tweaking sales contracts recently to give them room to wiggle out of starting work or completing the project on time without any penalty and leaving the buyer entirely with the risk? I have heard for example that people with a FHBG could lose their entitlement to this grant if foundations were not laid within a certain time frame….but they would still be liable to pay the full amount when unit/house was completed.

  114. Ned S, my understanding of the principle place of residence rule/6 year rule, is that you can rent your principle place of residence out for 6 years and if you sell before the 6 years is up you pay nil capital gains tax.
    Alot of builders/renovators have taken advantage of this in recent years by buying a standard home, moving in, renovating them up and offloading them without having to pay capital gains tax. Mind you I bet some have been caught out in the last 12-18 months, especially renovating the upper end of the market homes. =P

  115. Kinny: Yep, they’re what we call ‘flippers’. No, not famous TV dolphins, these are people that buy houses for the pure purpose of increased capital gains.

    Named flippers because they buy, modify, then sell. (Flip!)

    I have zero sympathy for flippers that get caught out when the market turns. These people are speculators to the max. They aren’t looking to improve anything out there, just to leverage off a huge capital appreciation rates in the market.

    Usually they will target mid-market houses, not so much the lower end, and not upper-end mansions. Taking out huge loans, they use leverage to buy the house, then renovate (sometimes pretty dodgily…its all about ‘appearance’), and then sell at a higher price. After their own labour and renovation costs, they expect a certain margin of ‘profit’. Catch the surprise on their faces when they sell at the same price they bought the place for, or less, after a years worth of work.

    Thats what you get when you take huge risks and expect money for nothing (a 50K renovation increasing a house price by 200K? It may have worked in the past, but that doesn’t mean the 200K due to added ‘home value’).

    Flippers will be very hard done by in a turning market…and I expect they will be almost completely absent from a falling market.

    Just the presence of ‘flippers’ should be warning enough to people that the market is somewhat misaligned. When average Joe Bloggs goes from Vetinarian to ‘house flipper’, its a sign that things are ready to turn for the worse.

    The free-lunches are over…

  116. Oh, and consider the TV shows for flippers:
    – Hot Property?
    – Renovation Rescue
    – Backyard Blitz
    – The Block
    – Ground Force

    Yes, some of these aren’t necessarily targeted directly at flippers. However it does show how ‘renovating’ and home improvement has become a bit of an institution in Australian society of late. It seems everyone either wants a bit of capital appreciation, or just a better lifestyle.

  117. I wonder if the government will ever have the courage and integrity to phase out negative gearing on existing property.

    Negative gearing has been one of the main drivers in making housing unaffordable. Investors are egged on by a tax system to speculate and encouraged to use the tax breaks to outbid genuine home buyers at sales of existing properties. Very few homes are built by investors. So we end up with a designer mess.

    It is material for a comedy of sorts. Any script writers out there?

  118. Bob: It’s so hard to tell with the pollies. With the supposed ‘Tax Reform’ crap going on (Ken Henry) I think it’s possible…but you just know its a vote killer…

    Right now is a great time for Tax Reform. We are in a transitionary phase where most people will get hurt financially anyway. A great time to sow the seeds of a good tax structure (phasing out Neg Gearing would take a few years anyway).

    Some people on here have posted some great ideas about how to get rid of it, such as treating real-estate like a business, etc.

    I think in hindsight, as you are alluding to, once negative gearing is gone, we will look back on it and say “what were we thinking?”. Unfortunately it is just such a ‘way of life’ for Australians at the moment that a lot of us don’t see the problem with it.

    Although, sadly, I half expect the Gov. to implement something similar to Neg Gearing when house prices well and truly slump and they want to try and increase investment (again!). If they do that, you can be sure they won’t learn their lesson and get rid of it when the market picks up again.

    Bring on the $50K FHOG, etc… :(

  119. Pete, Henry and Garnault and the Access Economics tossers (not forgetting the latter lapdog McKibbin) were all part of the team that pushed the great debt funded services economy swindle that whooped up GDP so they could clip the ticket with GST and make the capital & trade accounts look better on a ratio basis than they really were on a real world (debt service) basis. n

    Now Henry sees discretionary trade and services getting flattened he is going to look for his expanded nanny state level of tax receipts from the old sources (land and death duties).

  120. Kinny – I don’t think you’ll find the 6 year rule applies in the case of an owner remaining in residence and renting out some spare capacity. It only applies if the owner has moved out of the property altogether. (I’m not a professional in the area, but that is my understanding.)

    On 27 March 2009 Kinny wrote:

    “Ned S, my understanding of the principle place of residence rule/6 year rule, is that you can rent your principle place of residence out for 6 years and if you sell before the 6 years is up you pay nil capital gains tax.
    Alot of builders/renovators have taken advantage of this in recent years by buying a standard home, moving in, renovating them up and offloading them without having to pay capital gains tax. Mind you I bet some have been caught out in the last 12-18 months, especially renovating the upper end of the market homes.”

  121. The tax breaks aren’t just for investors. Owner occupiers have a number of tax breaks available to them which also help to artificially increase prices.

    Owner Occupiers
    1. First home buyer’s grant.
    2. Capital Gains Tax concessions (i.e. none paid).
    3. Stamp duty concessions in most states.
    4. Land tax concessions in most states.

    Investors
    1. Expenses written off against personal income (negative gearing) if expenses > income from the property

    Hence, owner occupiers aren’t as hard done by as the media make them out to be. I know people who move into a place, do it up, and sell it at a $100k+ profit over and above the cost of the property with renovations…and yet pay no tax!

    Trish Hunt
    March 31, 2009
  122. Ned S is correct when he says that if you rent out a portion of your house, then sell it, then that portion is subject to CGT. It happened to me.

    Trish Hunt
    March 31, 2009
  123. I wondered why i stopped getting emails from you about new year. Anyway, i have re-registered. I make it my early morning to business to read your reviews.
    If I could, I would provide a useful chart (though you probably have your own) comparing rents and house costs along with real construction costs and real incomes for the whole country. This chart shows things got badly out of whack about 2000, and much worse by 2008. To return to the same price/rent ratios of 1990, there would need to be a fall in prices of another 10% in real terms (I think they declined by 10% already last year), plus a rise in real rents of 15%, I estimate. Until last year, I doubted this re-balancing point would be reached, but now that outcome seems increasingly probable.

    Chris Yorke
    April 9, 2009
  124. The main driver’s of the Australian property markets are (1) Demographics – the Greedy Baby Boomers (2) government land rationing – includes density and (3) Property developers being big contributor to Labour governments.

  125. So you think availability of credit is not one of the main drivers?

    People can’t buy Real Estate if they can’t get the money…

  126. Pete, reading your comments is like reading my own thoughts. We are on exactly the same page. Even down to the real pricing of houses – houses may hold their nominal value but will be accompanied by high inflation and hence, interest rates. Either way there is only one way, and that is down.

    On a related note, I find the following analogy helpful. The house price to income ratio is like a person’s state of alertness. It varies a bit but it can’t ever get too high or too low.* Economic stimulus (e.g. FHOG, negative gearing, low interest rates) equates to a chemical stimulant. The more stimulus you add, the more alert you feel for a while. If you keep drinking cups of coffee, you can probably pull an all-nighter and be somewhat productive. Maybe at 6:00am the next day, you can pop some speed or do a few lines of coke and be even somewhat useful for another few hours.

    Make no mistake though, once you go down that path there is no getting around the fact that there are penalties to pay – sleeping the next few days, poor performance, compromised immune system, etc. You can have some more “hair of the dog”, but you end up just becoming an addict.

    * The reason the price/income ratio varies homeostatically is because there is negative feedback preventing it getting too high or too low. For the negative feedback keeping houses from being too low, you can ask a RE spruiker. This is held up by the replacement cost of housing and scarcity of land in desirable spots. It certainly can’t go to zero, but certainly can go below replacement house + land costs, in much the same way the used car market operates.

    However, the upper limit is also subject to negative feedback. It is easy enough to work out what this limit is. All we have to do is find the maximum house price possible for a given disposable income (assuming frugality in living expenses).

    To calculate the housing side of things,
    Debt Service = Principal Payment plus Interest Payment.

    Assume interest only loan, as this makes the house price bigger for the same debt service.

    Interest Payment = (House Price) * (Loan To Value Ratio) * (Interest Rate)

    Assume:
    -100% Loan to Value Ratio (no bank will loan more).
    -Interest rate at historic lows and realistic low for a bank, e.g. 5%.

    So Interest Payment = 5% * (House Price), or House Price = Interest Payment * 20.

    Now to work out the income side. Tax for someone on $55k or median income is 21%. How much are other expenses? I think the most frugally the median person could cut those down would be to maybe $1500/year for food (wheat bix + milk diet), $1600/year transport (assume rail or bus), $500 per year for clothes. Electricity is probably going to be maybe $750 or so. Medical and others might be an extra $1k. So $5k, or 9% of median income. In total, taxes and basic expenses will be at least 30% of median income.

    Note that in reality the average Australian is going to sell their home far before they eat homebrand Wheat Biscuits for every meal, give up alcohol and even cut into the entertainment budget. (They are not the committed miser that I am.) So really, we can easily double or triple the $5k figure. This means more like 40-50% of median income will not be able to be pared back. People also have kids, and they cost money. (Consider that the banks consider mortgage stress to be when 30% of income is spent on mortgage, I am being conservative by saying that it is 50%).

    So we can say half of median income is the maximum that can be put towards interest payments before we see defaults. Or 2 * Interest Payment = Income, or Interest Payment = Income /2

    Substitute that back into our house price formula.

    We had: House Price = 20* Interest Payment
    Which becomes: House Price = 20 * (Income /2), or
    House Price = 10 * Income.

    Folks, we are at multiples of 7-8 in Australia already! To expect higher prices is to expect
    -a bunch of greater (and yet somehow miserly) fools to suddenly emerge from the woodwork, willing to dispense with all modern conveniences, determined to own a house at all costs, or have a large cash savings to throw at housing
    -no new houses to be built
    -banks to be content with interest only loans, when people have only a set number of years to earn income.
    -interests rates to stay where they are, indefinitely, instead of nearer to long term averages (e.g. 9%).
    -banks to keep lending at or near 100% LTV, or to overvalue a house in a stagnant/declining market.
    -unemployment not to cause people to sell their houses, or default, which will make banks more cautious
    -the Australian economy (dependent on Japan, China and the US) not to follow
    -Rudd/RBA to keep spending money and it not turn into inflation, and the banks not to up their interest rates to get a real return.

    There is literally no margin of safety in the system, everything has been tweaked to produce a maximum house price in terms of income without default. It only takes a small hiccup to upset the applecart. That is why I feel no urgency to buy a house. I don’t see how it can possibly build my wealth and renting is less than interest payments anyway (which are thrown away either way I look at it).

  127. Bargeass (I like your handle!) – I think you could be being a bit unkind to the “Greedy Baby Boomers” – They’ve basically been told for years that the Australian Government expects them to provide for their own retirement if they want it to be at anything above pension/poverty/penuary level.

    Some of them who probably quite wisely felt they didn’t understand the stock markets very well, have gambled on housing instead. And taken advantage of the same negative gearing rules there that apply to stocks (or any investments) – If my understanding of the general tax situation regarding borrowing for investment purposes is correct?

    Australian house prices are unrealistically and stupidly high. But the blame lies with government – Not with people who’ve been made fearful for their retirement by government. Nor with recent First Home Buyers who’ve taken the government bait to keep house prices unrealistically inflated. (Part of which is fear induced also in that if they don’t jump now they might never own a house in this apparently ever rising market.)

    If it is any consolation to you personally, logic says to me that the post baby boomer generations really must eventually get their day when all asset prices (houses, commercial real estate, stocks etc) eventually crash really big time as many retired baby boomers start having to sell their investments to live off. (Its a complicated question whether that will actually happen en masse – But the probability is higher rather than lower I suspect.)

    But as always, government will be doing its very best to ensure such bad things don’t happen – Including and most especially insidiously very intentionally targeting positive inflation year after year after year to devalue our money and encourage all people to take on debt and keep the banks well fed. (While masquerading as “inflation fighters” – Yeh right; Pull the other one because it plays Jingle Bells as the saying goes.)

    In the developed Western nations at least, we have had governments worldwide for many years (and still do) that have actively encouraged their populations to take on debt and actively discouraging saving money by intentonally devaluing our money. (Plus throwing all us plebs a few bones like negative gearing and First Home Owner Grants.)

    I have a personal opinion on that which I will not express here as it would involve using some words that are not generally regarded as appropriate in polite company. So I’ll just settle for saying that the whole Western monetary system is evil, rotten, corrupt, deceptive and manipulative – And fully endorsed by government.

    But this certainly isn’t showing any signs of changing any time soon. And if one at least understands these basics, they’ve probably got a better chance of having some long term financial reward from life than if they don’t – BUT A VERY BIG “BOO HISS” TO GOVERNMENT ANYWAY! (From all people with a bit of savvy regardless of what year they were born in.)

    > Comment by Bargeass on 13 April 2009:

    > The main driver’s of the Australian property markets are (1)
    > Demographics – the Greedy Baby Boomers (2) government land
    > rationing – includes density and (3) Property developers being
    > big contributor to Labour governments.

  128. Trish – It’s a really rotten thing to have happen to anyone. I feel for you.

    I had reason to check it quite thoroughly when aged family members were approached by a very well meaning intermediary re renting out a vacant granny flat under their house to a financially disadvantaged lady who was looking for affordable accomodation. I had to say to them “Don’t do it – It will expose you to tax penalties on future sale that you don’t even want to contemplate!”

    It is a bad and rotten law put in place/allowed to exist by bad and rotten government that supports the finacial well being of its banks and its builders and allied industries and its real estate agents and the general promulgation of the concept that there is a “housing shortage” in Australia, rather than it supports its general citizens’ financial well being or access to truthful information.

    Additionally FYI: It is ALSO my understanding that the six year rule only really got put in place to protect government diplomats who’d been deployed overseas – And wanted to rent out their houses while away; But in the interests of “fairness”, it had to apply to everyone of course.

    > Comment by Trish Hunt on 31 March 2009:

    > Ned S is correct when he says that if you rent out a portion of
    > your house, then sell it, then that portion is subject to CGT.
    > It happened to me.

  129. There is actually a SOLUTION to BAD GOVERNMENT (other than the American Constitutional right to bear arms and shoot them which is a bit drastic for anyone with non-violent inclinations) – It is called “Don’t pay your taxes” – Leastways not until we get listened to! – But everyone who is not a wage and salary earner (namely all small businesses people and investors) have to unite and do it – Or the odd miscreant who goes down that track alone just ends up in jail of course.

  130. Thrifty:

    Thanks for your comments, very interesting too. It seems that only the minority of people actually do these basic calculations. I remember a few years back I was trying to decide what to invest some money in. All the RE bulls said i’d be foolish not to invest in RE. Well, lets just say I didn’t particularly want to rush in to a lifetime of debt. I did my own research, investigations and basic calculations and found nice sites like this (and bubblepedia dot net dot au).

    Exactly as you say, there is no margin of safety in our current system. As I mentioned in the comments of a different article, in Australia our high LTV’s are only barely dropping now to 90%. In the UK for example, the majority of loans are 75% LTV already.

    Consider a first home buyer requiring an LTV of 75%. Thats 25% deposit on a house, lets say $280K. Thats a 70K deposit! Who could afford that? No-one saves anymore, thats why the FHOG is so important to sales in the current market.

    So we’ll see how shy banks become in a falling market. Because once it starts, the banks won’t want mortgages with negative equity on their books. I think they’ll hike LTV’s first, and rates second (with inflation and need for increased profit).

    It is a gloomy topic really. Look what the Gov’s loose policies have got us into? Its a horrible mess, and unfortunately the RE bulls prefer to keep the party going, rather than face reality (perhaps they’re on 20 coffees a day now). Hard to say what the Gov will do next, but I hope it’s not more vote chasing.

  131. Ned S: I agree with your point that the blame does lie (no pun intended) with the Gov, but I think that is not the only place.

    Some very big contributers include:
    – biased media (I think lots are still bullish)
    – real estate agents
    – financial planners/advisors (the “easy choice” advice)
    – financial spokespeople (supposed experts, like Ric Battellino from the RBA. I dislike him a lot)

    On an only slightly related note, is anyone sick of Bernie Fraser on that Superannuation ad? “As you all know, markets bla bla bla, and they will recover”… yeah…So give all your super to them so they can ‘invest’ it. I think it is immoral (for whatever that is worth)

  132. Pete, interesting comments again. I agree with you as to LTV (thanks for the tip on the UK banks being at 75% – an indication as to what they will do here in Aus). What follows is my thinking out loud about the topic.

    The banks have a range of different LTV loans on their books. They will have their loans worked out to maintain a constant real rate of return. For every fixed rate contract they would have some sort of borrowing or instrument they would be paying for at a lower rate. The rest is free to float.

    What do they want to avoid? They want to avoid having a lot of inadequately secured assets (negative equity) on their books that they will be forced to sell and realize a loss, never collecting the interest calculated when entering the deal. They can’t not foreclose – if they wait, the mortgagee will do a simple calculation and determine that it’s less costly to mail the keys back. These are not all of their asset base (other people’s loans). It is only the high LTV loans.

    Ideally, they would prefer to have house prices stay where they are. Hence they will spruik about how the market is not overvalued, how low-doc loans are equivalent to subprime and hence not a problem here, blah blah blah. Their actions will show what they really believe.

    Meanwhile there is the hot potato – existing high LTV loans on the books. The smart banker will want to pass on this hot potato (both new and existing high LTV loans) to other stupid and greedy banks, while not alienating their existing asset base – why lose a 60% LTV loan, when it is making payments? It may drop 40% in value, but that is the client’s problem, not the bank’s.

    The smart banker will also make darn sure that he has no exposure when he makes fixed rate loans. This means matching them with appropriate wholesale funds, using some sort of instrument if available, and when that runs out, using worst case interest rates.

    The solution to the problem of new and existing high LTV loans on the books: the smart banker will lower LTV ratios, and hire ultra-conservative valuers. I know from a reliable source that the latter is happening already.

    Raising interest rates (at least, until inflation rises as well) is both socially unacceptable and unecessary. The problem is high LTV ratios, not interest rates.

    Of course, this whole situation has been evident for years, and highly evident since about 2003-2004 or so. It is like a vessel of supercooled water, waiting for a catalyst to freeze. That’s the thing about value investing – you can always predict what is undervalued or overvalued, just not when matters return to proper valuations. Although if you can see a catalyst, it increases probability of when.

    There are several catalysts now evident.
    1. Unemployment rising due to GFC. This will directly cause forced sales, and more people renting, co-sharing, living with family members. This will drop valuations. This will also drop tax revenues. The government will borrow, causing future inflation, or risk a depression. You win either way if you don’t own housing. Depression means forced sales, and higher interest rates mean forced sales.
    2. Banks using more conservative valuations. (causes forced sales and reduced numbers of qualified buyers)
    3. I think banks are lowering LTV as well. I remember back in 2005 I was hearing a lot about interest only loans, 100% LTV and the like. I don’t hear about that now. (Same as in 2.)
    4. Drops in >$500k properties. (reduces buyer confidence)
    5. The last of the easily influenced sheep buying in to the government’s “Crazy Runout Sale!!!” increase in FHOG, leaving few such sheep remaining.

    These factors will bring about an increase in sellers and a decrease in buyers. Note that a sufficient condition to limit buyers is reduced confidence in housing OR tightened lending standards. Either will suffice, and both will have an effect.

    To address your other comments, yes, I went through exactly the same process as you did several years ago. I had the advantage of taking some accounting (both high school and uni), finance and a real estate course in university. I am an engineer, but I have always been interested in business. One thing I remember from university is that even dropout engineers will ace any business course they try (reason being is that engineering is harder and entry standards are higher).

    On that topic, all the RE bulls I know personally are the sorts to struggle with a high school physics class. They are not systems thinkers. Their MO is to do what is conditioned, and watch their peers. They are such herd followers that even if they can do the math, if 90% of their friends and the media think something, they will completely ignore the math. Even engineers turned MBAs I knew and accounting TAs were talking about the “New Economy” back in 1999, when everything I saw pointed to bust, e.g. “Pro-Forma financial statements” – remember those?

    I would not take their advice in high school and I won’t start now. There are other RE bulls I do not know personally who are smarter, but like Battellino, have a vested interest.*

    The real estate course was very useful. It taught me to calculate profit in a rental, including all the expenses that RE spruikers conveniently forget to mention. There are several different methods of valuation. Basically, you can only make money one of two ways. As an income stream, or in capital appreciation. What most sheeple don’t understand is that there are limits to capital appreciation with respect to income, if you study history. And when those limits are reached – they don’t end in a plateau. The most plateau-like outcome is Japan’s real estate price drop.

    Combining my study of history with my real estate valuation toolkit, like you I saw that Australian RE was in a massive bubble, and not to invest unless I found something at a crazy price and close enough to work to make a case for purchasing based on transport costs and growing my own food, which of course I did not find.

    The fact is, herd thinking dominates society at present. A herd of house buyers, a herd of bankers handing out loans at stupid LTV ratios. And if/when houses are again at < 3 * Income, the banking herd will have learned the wrong lesson – not that LTV of 90% were stupid to make at Price/Income ratio of 7, it’s that LTV of 90% were stupid to make at all. The same way with the house buying herd – they will have a deep distrust in bricks, mortar and mortgages for many years to come, even when it is unwarranted.


    * The thing I love about the RBA is that their info is great – it was reading the RBA reports that first put me on to the housing bubble. All you have to do is ignore the text and focus on the tables and graphs. If you do that, it’s quite comical how their prognisticator of the day is writing about how safe and rosy the future is while the graphs and tables tell a completely different story.

    The media bias you mention is interesting, and I believe due to advertizing. I also suspect that they are presently in the process of blackmailing the real estate industry. Notice how news.com.au always intersperses a spruiking story with a doom and gloom story. Doom and gloom gets circulation, and spruiking gets money. Doom and gloom is also a threat. “Well, Mr REI. It has been a little while since we printed the last heavily subsidized RE story, and unfortunately, the price of advertizing has gone up – every time we print one of your stories, our journalistic integrity is at stake. We were thinking about digging up some more unemployment figures or foreclosure stats for our next article, and unleashing our moderators. What’s that you say? You want to buy some more advertizing? Why didn’t you say so!”

  133. Bernie Fraser – Yes, the ex RBA boss turned superannuation salesman. Far better to ponder the thoughts of Ian MacFarlane I think – That “other” ex RBA governer who suggested some years ago (if memory serves me correctly – and I think it does?) that it was a bit of a concern that Australians had begun to rely so heavily on superannaution with it’s inherent exposure to the risks of international stock market fluctuations for their retirements whereas before the days of superannuation, Australians would had been busy getting their house paid off and getting some savings in the bank. And who also came out with this little gem some years ago: “If we are not careful, there is potential for conflict between the generations. The young may resent the tax burden imposed on them to pay for pension and health expenditure on the old. This will particularly be the case if they see the old owning most of the community’s assets.” MacFarlane was nobody’s fool!
    But sadly MacFarlane was a lonely voice of caution, sense, reason and even profound wisdom crying in a bubble and boom wilderness.
    Even the current drone (Glenn Stevens) is smart enough to have eventually figured out he has a BIG problem now – And that it just might have been a good idea if the RBA had been a bit proactive in trying to prick the Australian housing bubble when it was forming – Which would have meant even HIGHER interest rates – A sensible alternative but MOST politically unpalatable of course. (John Howard got voted out over precisely that issue if my recollection/take on the things that led to his political demise is correct?) But either way, right now Mr Stevens is having to do just the opposite – Drive interest rates down. Quite perverse really – I suspect poor Mr Stevens is not sleeping all that well some nights as he contemplates Australia’s mid term future?
    I have the knife into superannaution big time – A scheme that by default FORCES a sizable percentage of Australian’s incomes into Australian stock markets week after week and year after year totally irrespective of whether the market fundamentals warrent more buying or not sounds like an incredibly effective way to create a bubble to me. And just how might that all end we might ask?
    Ponzi scheme comes to mind the moment one realises that it is based very largely on the concept that stock markets always go up (if you wait long enough) and that future generations will continue being silly enough en masse to keep supporting it ad infinitum.
    And the Americans do it (401k – they call their superannuation) and the Japanese do it. And while I have not specifically looked, I’d imagine it’s a pretty fair bet that lots of other developed countries do it as well. IT IS ALL A BIT OF A WORRY PEOPLE.

  134. I can’t helping thinking of all those people who are relying on using their superannuation payout to pay off their home loan when they retire. Western world governments have allowed things to become so badly out of whack now that they have no alternative but to keep trying to drive asset price bubbles up. A depression is the obvious solution. But a depression is so politically unacceptable that world governments will fight it tooth and nail. But somehow I get that very bad feeling that even if they “win”, they will have only delayed the eventual day of reckoning.
    If they should “win”, then LOOK OUT FOR THE CRASH OF 2014 – IT’S GOING TO BE A DOOZY!!!

  135. Eureka, finally I found some hard(ish) data that might be interesting for people. The National Housing Supply Council has figures for new housing costs per square metre. I wonder if we can get those figures for say the U.S?

    Funnily enough, Sydney is not the most expensive Australian major city according to the data…in fact it is one of the least expensive cities?

    I have posted some of the data here:

    Average Cost for new housing

  136. Ned S, I doubt that we will see a conventional 1930s style depression. I think that the governments of the world will do what they usually do since then – inflate their way out of trouble. If this means printing money to employ people in “make work” New Deal type work, then that’s what they will do.

    This would mean that say, in 2020, we may still have median $480k houses. We would also have $15 value meals from McDonalds, and median incomes of $120k. The house keeps its price but not its value. It is more politically acceptable because the pain goes to everyone not just those who are left holding the bag (property owners) when the bubble pops.

  137. Thrifty – I agree – There is no question that governments are aiming for an inflationary style slump rather than a deflationary one. There is some question as to whether they’ll suceed. I think America will. But I’m not so sure about some other countries – Japan for instance?
    But either way, I have seen the aftermath of Russia’s 1990s inflationary depression – It was very bad. So the concept of an inflationary depression is scary too – Simply put, middle class people are very likely to get wiped out financially either way from I can make of it.

  138. Good points Ned and Thrifty.

    Thrifty, as for your comment about median prices in 2020 – you assume that everything will inflate at the same rate. Sure, things might inflate steadily in a bullish environment where everybody is confident of a wealthy future. I suspect that there will not consistent be such inflation in Australia’s future though.

    – Wages: With a high unemployment rate, would these inflate at the rate of inflation? Or does higher competition between workers keep this down? (Also consider that earnings of businesses/employers might not inflate evenly too)

    – Assets: Are only worth what someone will (and can) pay for them. Assets that have a good P/E ratio (a real one, not a ‘on the books’ one) will be more valued as money earners. When it comes to preserving wealth in an inflationary environment, the P/E needs to be pretty good (low). This includes Real Estate/Rents. Rents will drop (as they correlate with wages), requiring a reduced price of RE for a good P/E (if that makes sense).

    – Commodities: I suspect these will go up in price a lot. They are fairly liquid in trading, and are valued pretty well. Gold for instance should do very well. Oil too. Some others might not do quite as well. Food should do well (hard to tell).

    – Cash: This depends on bank interest rates. Banks will probably be really keen to get deposits in when they start losing money from the popping RE bubble (that is my assumption anyway). In this case, they may offer competitive rates, but probably still not matching the real inflation rate. Still, in the short-term I think you could definitely do worse than have some cash (no-one else will have any, which gives you buying power). Not a good long-term option as inflation slowly erodes its purchasing power. Keyword is slowly. Assets could erode it much quicker.

    I know this is a real estate article, I just thought i’d give my 2cents.

    I might retire from commenting on real estate for a little while, I am finding it is draining me a bit. The seemingly endless uphill battle of an RE bear, pushing back against ignorant bulls. Besides, I think by this stage anyone who is still bullish on RE because they can’t think for themselves, deserves to be bullish.

  139. Pete I think you have misrepresented the RE discussion. Many people including myself are not RE bulls but do question the view that Australian RE prices will suffer a U.S. or U.K. collapse. In addition to label people who are RE bulls as “ignorant” is playing man as they say and not the ball. We should discuss issues based on facts, and not label either side of the debate as ignorant.

    Remember the article that kicked off this discussion thread stated that Australia housing were seriously affordable and like many articles posted in DR predicts housing prices will collapse. However there is a viable alternative view regarding the direction of property prices and that is that prices may only slightly decline or remain flat for a few years This is not being bullish, but I have noted in a number of discussions anyone who merely raises this option is labeled a RE bull.

    In any case, let’s respect everyone’s opinions and be careful who we label as ignorant, because one day they just might be proved correct!

  140. Barge-ass – “The main driver’s of the Australian property markets are (1) Demographics – the Greedy Baby Boomers (2) government land rationing – includes density and (3) Property developers being big contributor to Labour governments”.

    Research seems to indicate that “land banking” by Government is a myth. There are huge reserves of land held by developers who hold in anticipation of optimum market conditions. Austalia’s residential property price insanity is a function of easy and cheap credit. When this dries up, prices must fall.

  141. Pete,

    You are right – those are figures I used merely to show how inflation works, in general, just to indicate to a theoretical bystander that you lose real wealth even if your house stays at present inflated nominal prices. And even if you pay inflated dollars to pay that house off, the bank will ensure it gets a real rate of return. The best you get is a 5 year window, and you pay to get that.

    At the end of the day, I want to know how many hamburgers (or some other routine purchase) my investment is going to buy in x years.

    Regarding your other comments:
    Wages – I would doubt that this varies much. I checked this on Economagic.com – http://www.economagic.com/em-cgi/data.exe/rba/glcawoet

    CPI was about 7.5% annual increases during the 1980s, and 2.5% or so up to he present.

    Looks like the RBA agrees:
    http://www.rba.gov.au/monetarypolicy/about_monetary_policy.html

    The wages appear to be in that same ballpark. Too lazy to create a spreadsheet and calculate the real wage over time. There was a bit of stagnation in the early 1990s. Perhaps we could have that again – not surprising if employers hold the whip hand again.

    Assets:
    In general I agree with you. I suspect that credit tightening has the potential to further drive down shares in aggregate through further margin calls. High inflation means high interest rates, which means that P/E ratios should be low enough to beat bank interest rates as there is an increased element of risk (excepting growth expectations). So low P/E ratios will be forced. Additionally, those who borrow to buy will only buy if the expected return exceeds the rate they borrow at.

    Rents and RE:
    I agree with you here. Rents are more tied to wages/inflation than anything else. Ultimately their price will be determined by available credit. Lower LTV and higher interest rates will both act to constrain prices. Once the “up and up forever” consensus gets hammered by a massive shared experience of money loss, negative equity, bankruptcy etc, the market will not be sustainable on a capital appreciation valuation. Thus, the floor will be set by rental return.

    Note, this rental return needs to include all expenses + profit, and beat bank interest, since that is the alternative to put money which is less risky AND it will be used to buy this real estate otherwise it is nothing but a risky money loser.

    This is what a lot of RE bulls don’t get – if you have 10% interest rates with no capital appreciation, and rents don’t rise (which they can’t, considering how rents are nearly at interest payments and those who buy homes are under mortgage stress as it is – the alternative is shared living), that means that the house you bought for $480k now yielding 5% in rent must now yield a 12% (or something > 10%) return in the market. Add in allowances for vacancies, rates, repairs, depreciation, property management fees, you would be looking at something higher, e.g. 13%.

    So now, if you were getting 5% in rent, you get $24k per year. Divide that figure by 0.13 and that’s what your $480k house is now worth. $184k. That’s rougly 3 times median income, which I believe is world average.

    This is where the average RE bull starts chanting “There’s no place like home! There’s no place like home!” while praying to wake up in Kansas, in between groping around for newspaper cuttings about housing shortages written by none other than RE industry spokespeople (we’ll conveniently ignore the census data that says otherwise). Got help them if interest rates go higher than 10%.

    Commodities: I agree with you in general. There is a chance that gold will spike like it did in the 1970s. In inflation it should do well.

    Cash:Good at the start, but not good soon after, as taxes start taking their toll. You may get inflation + something small, but after tax it will be below inflation.

    Quitting RE commenting: I’m not sure why you held out as long as you did to be honest. I don’t enjoy arguing with RE bulls, as nothing I say will make the slightest impact. Most own property, which is a difficult and onerous thing to sell. It is easier to convince themselves that pigs will start flying than to rent or realize a loss. The only argument that will truly make an impact is the banker coming to repossess their possessions. It’s not an argument I can make.

    A person either understands that there is a fundamental limit to the price of houses on the upside, or he doesn’t. It’s a bit like modifying a car – you might double the output kW for a given engine volume, but by doing so you have to prepare every component in the system to operate at peak efficiency. Bigger turbo, bigger intercooler, bigger exhaust, bigger intake, same engine. Eventually though there is a point of diminishing returns and no more power can be gotten out – see F1 cars.

    The problem with being a RE bull is that the system created a system analagous to the F1 car, where everything is tweaked to produce a maximum house price/income. This works great in F1, where each component has been engineered to not break down during a typical race. Where you are relying on that which fluctuates, e.g. interest rates, world financial conditions, employment to align for your benefit, you do not have a finely engineered engine. You have instead built your house on sand, or in yet another analogy, you have built your farm north of Goyder’s Line. (Actually, you have built your farm not just north of Goyder’s Line, but in the centre of Australia somewhere one of those freak years it gets some rain. Instead of Price/Income, you have Annual Rainfall.)

    http://www.southaustralianhistory.com.au/goyder.htm

    As you say, ultimately the market determines price. If people can’t afford to pay, they will find alternatives. Much like SUVs recently and the Edsel back a while ago, cost to produce does not determine market price. A dream home is only a few plaster sheets away from being a duplex.

    If you don’t decide to keep posting here, let me know, I’ll create some sort of anonymous email account to get in touch with me if you like. A further exchange of ideas might be useful for both of us.

  142. I for one would never join the volunteer bush fireys, why should I risk my life and limb to save property which I can never afford, to protect the interests of a group that I am locked out of because I am young? I would never become a nurse or a doctor or a cop – why work to protect a society which treats me as a second class citizen becase I am locked out of the housing market… I am taking my young family to houston where we can afford a roof over our heads and the babyboomers of australia can rot!

  143. Thrifty: I’ll keep posting, just a lot less often (Ned S seems to be doing okay).

    One of the main reasons I posted was to provide some counter points to people who might be confused or undecided on whether to buy property. I figure that if I helped just one person think for themselves instead of listening to the overwhelming noise of RE bullishness in Australia, then I am happy.

    In previous months finding information to support bearishness on RE was a bit hard to come by. Nowdays though I think if anyone is still bullish on RE – let them be. There is more than enough information out there to make relatively informed decisions about this stuff.

    Thanks for your posts, you pointed out some stuff that I didn’t actually consider (like the 10x earnings maximum). Happy to keep in touch.

    If Gov. intervention somehow manages to keep RE prices afloat for longer than expected, RE bears can take comfort from the extra time they will have to prepare for the even bigger crash.

  144. With many saying the First Home Owner Grants actually pushes up house prices, is that what the Government wants. Given that when house prices increase,so do council rates, capital gain tax revenue, and state stamp duties etc.

    What makes me wonder, is why is there little barriers to homelessness, yet if one is to make a effort to build a roof over their head, they are faced with all the barriers such as permits, planning, zoning, fees, insurance etc. Whilst I’m not advocating building anarchy, much can be said about the obstacles in placed to build what is a necessity. It seems there are just too many vested interests involved in the housing industry, so I supposed it’s just wishful thinking that it could be made easier for those in struggle street. Those that support all the regulations point to health and safety, I wonder if they are implying that being homeless is a safer and healthier option?

    I suppose the whole economy relies on debt, and what better way to insure people turn up to work on rainy cold Monday morning is to enslave them to it.

  145. Moses asked the Pharoah to let his people go, when they were enslaved to a cruel and heartless tyrant. Coming back to modern times, people still want to dominate and disempower others, only the vehicle through which they do it has changed. Today we are debt slaves, chained to a financial system sucking the life out of us. All of us work for the government and banking system, but given the illusion of freedom by cheap entertainment & novelties. Why do we keep voting these people into power? Why don’t we demand more?
    We can blame everyone else, but the fact is human ignorance will always allow such monsters to be created and manipulate us. If we enjoy the bliss of ignorance it will come back to haunt us.

  146. Good points Paul.

    Re: the council taxes, etc. Yes, they certainly gain from higher Real Estate prices. I guess they saw that a lot of money was going into it and thought it was good going to be skimming their percentage. What is really ‘sad’ is that they seem to think it is a good idea to continue to keep prices aloft to get more revenue.

    Shame about the moral consequences to it all – debt enslavement advocated by the authority you trust(?) to govern you.

    Sadly the crooks will go completely unpunished. Except for their Real Estate portfolios.

  147. Re: real estate. There has never been so much inventory in my local agents window. Further, he tells me that prices have already dropped and “everything is negotiable”. I do live in a rural area however. I do know people in suburban areas that think the market will always move along and that its actually still steady know. Maybe it is still steady there for the time being. However me thinks that what is already happening in my town is coming their way fast. I just cant see how the next leg down in the global economic scenario wont be a broader scale disaster with Aussie property included.

  148. I just found this site, and might mail it to my friend, he just bought another house at the cost of $400G. And owing nearly $250.G on his own house. He also is earning a large amount of money p/week but the expenses inc land rates – bills etc – give him the wages of someone from centrelink. His only hope is that houses are going to rise at least 10% in value a year, so he can sell one off in around five years, and end up paying off his mortgage. I own my house and have already been shoved onto centre link wages, so I’ve given up
    about buying anymore so called assets.

    But after reading the comments here, it all looks like downhill from now on.

  149. In my small town (pop.700) the real estate scene, vibrant just a year ago, is dead. Meanwhile 70mins drive from here in high density residential areas the market seems to be holding in to some degree. I just did a hop from home owner (small acreage) to short term rental in town to farm living (feed animals for rent). I am still paying out the rent contract on the house in town because not only are house/land sales dead but so too is the rental market. The reason according to the agents in town is that people are both leaving here, or not coming here in the first place due to the cost of living/fuel prices etc. I assume that this movement back to high density areas artifically supports the market there ie its not supported by underlying economic growth.
    Local real estate not very happy .:(

  150. Location, location, location.
    Pete makes his true intentions very clear in a single line: “RE bears can take comfort from the extra time they will have to prepare for the even bigger crash.”
    Put property down, so we can pick property up. ;)

    Biker Pete
    June 8, 2009
  151. Lachlan, I live in double garages 110 km from home, while completing houses our family of four is building in a small, thriving coastal city. We still have homes in a town further south, which priced itself out of our market: Land more expensive, site preparation excessive, building costs 15%+ higher…. but income over $10,000 PA less… therefore rents up to $100 PW less for the same house. There are currently just _two_ houses for rent in the beachside suburb in which we have built quite a few homes. We’re not Gold Bears, or Super Bears, or Cash Bears. We do align with those who are troubled by the US scene and, for that reason (combined with our ignorance!) we probably are Share Bears (at present). I’d apologise to those whose circumstances are less than ours, but our current good fortune is, at least in part, due to following a concerted plan over a lo-n-g time… and adjusting (as in the 110-km relocation) when this was the right move. Any advice I might want to give you about life (after 60+ years of trial and error) might bring howls of derision in a forum in which there’s great pessimism about property… and huge optimism that house prices will crash. If you are young enough to move at will, you probably do need to travel more. We never built until we’d seen a great deal of the world… so we can’t blame our sons for spending their twenties doing the same! Remember as Greg Atkinson once stated in this forum: There are many property markets.
    We agree that some will fall… some will plateau… and some will rise. Location does make a difference… .

    Biker Pete
    June 8, 2009
  152. Biker Pete (and Lachlan)..I am trying to get a grip on the feeling in the housing market as opposed to looking at statistics and graphs etc which bore me to tears. When you have time can you pop over and share your thoughts on the subject? So far it seems both sides of the home prices debate are looking at the same data and seeing different things!

    Life is much more simple here in Japan…a home is a home and if you mention capital gain you often get a blank stare :)

  153. OK… we’ll drop in for a look, Greg. We have friends in Tokyo… and my wife is now jotting in stopovers for the return leg of our RTW trip, commencing early July. That should see us in Tokyo mid-Jan ’10. I’ll email you a day or two before, if you like. I imagine a coffee will be around A$20.00(?) A past stopover left us a little confused about Japan and my wife hasn’t given it a high priority for MC touring, so far.

    With virtually no capital gain in two decades, I’m not surprised the Japanese are quizzical! Still, their economy _overall_ has been in stall mode a very long time… .

    Independence, a comfortable retirement, good bike tyres and northern hemisphere summers are all we want from property. A tent by a canal, lake, river, stream, sea, or ocean vista, a great bottle of wine and friends with yachts isn’t too much to ask… ! It works for us. :)

    It will be interesting to assess England and Scotland four years on. We have three weeks touring in a friend’s new Peugeot. Bit of a change from our MC touring, but how could we turn down an offer like ‘take one of my cars’? I’ll probably bore you all with perceptions of the US and Canadian property scene. While our route now follows the Canadian border, my navigator has planned a series of border crossings into the US to see how much has really changed… .

    The two of us spent the weekend levelling the latest project, carting away trailerloads of sand. Looked for bargain properties and found nothing. A ground floor 2BR apartment on the beachfront for under $500K looked promising, but we couldn’t make the maths work… . Far better returns building 4BR2BRDGHC places ourselves… .

    Biker Pete
    June 8, 2009
  154. Biker Pete – yes let me know when your Tokyo plans are settled. I am down the bottom part of Japan but am often in Tokyo. A cup of coffee will only cost you $20 if you follow the tourists :)

  155. Thanks, Greg. I’ll let you know what’s happening. We’re travellers rather than tourists, as you’ve no doubt gathered from my posts, but sometimes we shell out for a few luxuries. Won’t tell you what four nights in a good New York hotel is costing us!! ;)

    Biker Pete
    June 8, 2009
  156. Gidday Biker Pete and Greg
    I’m having visions of myself locked in a cellar, eyes taped apart and property investment promotionals being played over and over before me :)
    Honestly though I do appreciate the potential in property since I did benefit myself. My wife and I bought into property in this little town literally a week before every property previously listed was gone. It was good luck. We had been struggling to buy a block for years because we had low income and needed a place to relocate an existing business, a nursery.
    The bad luck came when my wife left. It was a shock to everyone. So after a brief but acute nervous spasm I/we sold the property. It was hard to sell because it had a defunct business on it. However I stuck to my price because there was still nothing much else here for anyone to buy and demand was hot….back then. Eventually we sold and realised 320% gain on our original investment.
    However I see the future for myself still in farming or horticulture and thats the type of environment I wish my littln’s to grow up around. We (2 kids and myself) at least live on a farm now however I wish to own one (medium term) so I can work/develop my land as i see fit.
    To get there (and beyond, since primary production dont make big $) I am pursuing investment in various things and saving my income (self employed).
    But as you both say its about position…. About 75mins drive from here is the residential heartland of the Sunshine Coast listed atop the table (top of page). Real estate bulls are still laughing there (Ive been told).Just for here and now me no property bull.

  157. Thanks for that recount, Lachlan. It helps explain your situation well. Life sometimes deals us a lousy hand and I empathise. Being self-employed you have some great future advantages.

    Some might term me a Property Bull, but in fact I probably differ from that herd, somewhat in that:

    * I too am _thoroughly sick_ of realty advertising. (We laugh at some of the garbage we view/hear!)

    * We don’t believe we’ll see significant capital growth anytime soon. We’re realists;

    * We don’t have a huge amount of time for realtors, although we have been fortunate in that respect;

    * We have covered most other asset classes well;

    * Our current thinking is to not sell… perhaps ever… . The more literature we read, the more this
    position is reconfirmed… . Are writers simply stressing this because of the downturn? Who knows?

    * When we do sell, we sell our own stuff… and much of the time, we sell ‘options to buy’… .
    While that’s done for (legal) tax reasons, it gives potential buyers six months to a year to bail… .
    And yes, we’ve always paid tax on any funds gained through that process.

    Having said all that, only super and property have given us assets which should mean we’re independent and comfortable. Used together, they’ve set us up for the rest of our lives.
    Saving really only helped when interest was around 18%… and we bought bank bills scoring
    18.75% in that period.

    Your plan seems sound. Our kids were both raised on an acreage… and one of my sons aspires to that lifestyle in the future. Can’t knock that dream! If you have heavy rainfall in your location you could do just about anything. I’m only limited by the lack of flowing water all year round… .
    Retirement should mean near self-sufficiency for us. That’s a big part of our dream. My dad achieved it (albeit on a property over twenty times the size, with a river and deep stream) but I’m convinced it’s possible on our land.

    Wish we had more practical horticultural knowledge. Our mixed orchards are pretty hit-and-miss!
    More fruit than we can ever consume or give to friends and rellies, but you’d probably be amused by our learning journey….. . :)

    Biker Pete
    June 8, 2009
  158. Property Bulls on the Sunshine Coast?? You ought to talk to a few truthful RE agents here…it is dead…DEAD!!

    The Outback Oracle
    June 8, 2009
  159. Hey, don’t shout, T.O.O! The missus will hear you and drag me over there to buy something beachside!

    Biker Pete
    June 9, 2009
  160. Biker Pete,

    While your there why not ask the local Japanese what happened to there housing market???
    You may learn a thing or two.
    But ohh no thats Japan that could never happen in Australia.
    HAHAHA

  161. If high inflation strikes wouldn’t it be nice to owe a huge amount on fixed interest? Your average salary earner would achieve that with a fixed home loan. I am wondering if i should do that. I need a house to live in.

    You know I have spent time in Venezuela which has inflation of 30%. Propoerty prices keep up exactly with inflation – in fact every thing does, except salaries.

  162. Yes, Nick, that would be OK. But if hyper-inflation hits, owing a huge amount on fixed interest could be even better. Imagine owning a dozen rentals, with your major cost (interest) at 0 – 2% in real terms. As Warren Buffett just warbled: Who’s afraid of the Big Bad Wolf?!

    Biker Pete
    June 29, 2009
  163. Uh, sorry, Nick, I meant VARIABLE interest, of course! :)

    Biker Pete
    June 29, 2009
  164. well been doing some research on this topic going on abs stats we have 800 000 empty houses in australia . other places sugest that level is much higher . high end houses still falling and the first thing to be sold off when people need money are luxuries ..ie: holiday homes ,sports cars boats etc .another thing i think is many are in the property mkt for tax breaks, negative gearing . anyone noticed more homes for rent ? the next big problem i see is comercial real estate also when your out start take a note of how many are for lease or signs on the front ..closing down sale ..or many businesses are down sizing and moving out to cheaper areas ..

  165. Housing in Australia has got to ridiculous levels in relation to price and availability. I have read 100’s of articles on how our houses are overvalued by anything from 25% up to 55%. I have gone to Auctions and watched investors in ther 40’s pay 10’s of thousands over the reserve because it’s a tax write-off “don[t care what i pay’. We have successfully condemned the next few generations to a life time of renting or struggling with absurd mortgages, and in reality everyone who has a property or an investment couldn’t really give 2 shits to what impact it is having. The social impacts will affect us all and could in time cripple us, if people feel life is hopeless they will in turn treat it that way,
    I am 29 and have little hope of owning a house at this point, compounding the issue is the fact that rent has exploded, i am in a one bedroom shit whole that is now costing me $340 a week. I earn 70k a year but throw in rent, health insurance, food, mobile phone, internet, and petrol and running costs on my old car then i have very little left to show for my 60 jour week.

    I am afraid for what the future holds for us all, whether the prices rise or fall it will bring heartache for a lot of people, it should never have been allowed to get so bad!!!!

  166. If your house is not Freehold, you don’t own a house you just renting it from the bank.

    Daniel James
    July 28, 2009
  167. No wonder that in over 30 years of buying, selling and saving, I have never been able to move into a decent stand-alone house anywhere within 10 km of Sydney CBD – unless it is beside a noisy bus-lane. Blame all thsoe double-income households for pushing up prices.

    Chris Yorke
    August 3, 2009
  168. Location, location, location, Chris. You can’t afford the _location_ you want. The bad news from two NH continents is just as grim. You could afford to buy a house in Great Britain and North America almost everywhere except where you’d most want to purchase one. Instead of blaming all those ‘double-income households’ for pushing up prices, buy where you _can_ afford… . We owned and sold three houses before we could afford what we really wanted, where we wanted it. Arguing that house costs should be four times a sole income is neither a short term nor long term plan. Waiting for Keen’s Krash is just an exercise in noisy self-flagellation… . Waiting for The Boomers to drop off our collective perches could take another few decades… ! :)

    Biker Pete, Halifax NS
    August 3, 2009
  169. bubblepedia has been reduced to commenting on cronyism in the Qld government, their logo having been infringed and that house prices went down in Whyalla. And it sounds like gen X reckon it’s their turn to buy their investment properties now. It’s been a bad month (or decade or three) for the bears – Sigh.

  170. Ned S..yes the bears have had a few bad months..thank goodness. But from here things could get interesting again if we have the RBA raise rates just as the Government is weaning people off the extra first home buyers handouts. As you know I am not a property crash sort of guy but I reckon people should prepare themselves for a situation in Oz where interest rates head up and inflation creeps up. This may not hit property rises too hard but I guess it would keep a lid on capital gains? I ranted on more about inflation etc here: Government debt, inflation and interest rates.

  171. It is in the government’s interests to prop up prices through lending initiatives because most people in Parliament are property owners or investors. They would never remove these incentives and see their own properties value decline!

    The only way to allow property prices to adjust to reflect the current environment is to have a non home owner like you or me to create policy!

  172. Anthony, 9/10/09: ” ….most people in Parliament are property owners or investors.” Uhhh, think we could shorten that statement by removing “…in Parliament…”, Anthony. No problem with you buying gold and continuing to rent, though. Just think, when gold reflects the current environment, you’ll be able to buy waterfront on the coast… . :)

    Biker Pete, Vancouver Island, Canada
    October 9, 2009
  173. HeeHee… mild sarcasm won me the best Star Rating I’ve scored to date!!! :)

    Biker Pete, Vancouver Island, Canada
    October 9, 2009
  174. Anthony I heard that argument from an accountant recently, but my experience with politicians and the process of synthesizing policy says the real reason they won’t let property fail (at this point) is that _banks_ are unprepared for such an eventuality. I remember when Rudd came out with his stimulus packages and deposit guarantees. This was in response to rumours and a real danger of “bank holidays” and runs on banks _in Australia_ – that is where it all came from (we and others were cashing up in case one morning we ended up with cash flow problems from the then likely failure of one of the ‘big four’). It’s easier at this point to lump the absurdity of the situation on forced repayments through future tax changes (by Liberals most likely) than to hand the problem to those whose responsibility it is (today’s people with impossible mortgages).

  175. I think you summed it up nicely Dan. With the majority probably not really wanting a really nasty recession so we can all get a big discount on house prices – Although, Yes, I understand that wish from a minority too I think.

    You may have got a high(ish) score because those who recognised the mild sarcasm rated the comment with that in mind while those who didn’t rated it as read Biker?

  176. Biker Pete, if you get a good rating on DR then perhaps you know you are doing something wrong ;)

    Greg Atkinson
    October 9, 2009
  177. I know… I know…!!! :) But it does confirm something I’ve long suspected, Greg. Goldbugs really DO want property… . They’ll flog the precious stuff for a commodity many tell us is doomed, overrated, destined to crash and burn. Wave just a little bit of beachfront at ’em and they salivate…! ;)

    Biker Pete, Vancouver Island, Canada
    October 10, 2009
  178. Haha Biker. You’re onto something all right! (must be something missing from the water in Vancouver Island).

  179. No, no … You don’t understand Biker – My retirement plan is to work for wages until I have enough to buy a gold lease with a creek on it, then I’ll make myself a stone hut out of the rocks I dig out of my mine and plant fruit and veg on the surface so I’m totally self sufficient – And give some of the gold to the government every year to pay for the lease renewal – And look at the rest regularly because it is really pretty and I never enjoyed looking at TV or books anyway. (Government puts the gold in things called “vaults” I hear? I’m not sure why – Maybe they like looking at it too …)

  180. Ned, 9/10/09: “You may have got a high(ish) score because those who recognised the mild sarcasm rated the comment with that in mind while those who didn’t rated it as read Biker?”

    Just my very subtle way of reminding our moderator that I’ve no access to the rating system, Ned. As one of their very earliest contributors, you’d think my cogent, witty, expert comments would be welcome, wouldn’t you?!~ ;)

    VI is lacking the best Oz wines, Dan. We’re dumping our ‘vin ordinaire’ on the poor unsuspecting Canucks… . :)

    Biker Pete, Vancouver Island, Canada
    October 10, 2009
  181. Biker, the moderation system is IP filtered. Australia only as far as I can tell.

  182. Thanks, Dan. Makes sense!~

    Biker Pete, Vancouver Island, Canada
    October 11, 2009
  183. By the way..Steve Keen has conceded and lost his bet. He will be making a long walk next year.

    Greg Atkinson
    November 5, 2009
  184. One must not forget that the Australian population is rising by 7000+ per week according to the ABS.
    This must help prop up our real estate prices, especially if the immigrants are cashed up.

  185. several key problems that need to be addressed to improve the rapidly growing affordability problems in Australia, some suggestions:

    1. Review foreign investment guidelines for overseas investors to increase prospects of Australian residents purchasing their home so they are not competing with cashed up overseas investors and or would be migrants looking to buy their residency.
    2. Encourage long-term rental contracts be made available to those who want them and have proven themselves to be good tenants; the renting situation in Europe successfully facilitates this unstigmatised approach.
    3. Regulate transparency in property sales, the price of property should be transparent; For example, with sellers stating upfront the minimum they are willing to accept and let buyers compete from there.
    4. Stamp duty should be payable on the sale of a property instead of when purchasing, and/or cut for disadvantaged/lower income families trying to buy their own home.
    5. Revise Capital Gains Tax to allow claim your mortgage interest payments, and property improvements from income taxation, for owner-occupiers, rather than investors.
    6. Phase out negative gearing for investors and introduce it for owner-occupiers — Investors won’t be tax incentivised to keep driving property prices up as they scramble for more and more properties to rent out, whilst renters will be tax incentivised to buy rather than rent; Alternatives may be, limit negative gearing to new constructions; or cap number of investment properties able to be negatively geared; or cap total amount/value able to be negatively geared.
    7. Do something for those who are asset-rich and cash-poor, such as elderly owner-occupiers on large blocks of low density real estate but won’t sell as it’s their sole asset, or may be afraid to move to unserviced areas; developing neighbourhoods designed for the ageing population should be expanded in planning and housing programs,
    8. Elderly and non-working citizens need to be encouraged to move away and make room for workers who cannot get into the property market near their place of employment; these contributions to society should be prioritised and incentivised on both sides.
    9. Encourage smaller dwelling sizes and greater re-development in inner areas; the NIMBYs need to realise the greater social needs, so we must take a long-term view of development.
    10. Low interest loans should be made available to low income earners, and more incentives to develop and or invest in housing especially low cost housing
    11. Increasing taxes on static, undeveloped residential-zoned land, held by developers as land banks and governments looking at rezoning areas.

  186. I agree with 1. only in so much as restrict foreign ownership to citizens of countries that restrict ownership to us in their countries.
    2) Long term rental contracts are a thing to be decided between landlord and tenant.
    3) I am all for market forces dictating the price of goods.. I am against blatant underquoting by agents to get “numbers” to sales, however in a
    non rational market as we have now buyer sentiment can well push the price of a property well past what an agent thought it could/would be worth.
    4) I would be more in favour of a reduction or removal in Stamp Duty for first home buyers instead of “the FHOG”
    5) Tax deductible mortgage interest payments would have to be introduced in conjunction with Capital Gains Tax on the family home and by it’s very nature
    would favour the high income, high mortgage buyer over the low income low mortgage buyer…
    6) The removal of the negative gearing benefits of property investing would see a sudden reduction in the price of houses and the removal of the government
    from office that introduced it for a very very long time.. It would also have to be removed on non property investments as well.. margin loans, borrowing to invest
    in general.. Political suicide.
    7) They can already do something, reverse mortgages, sell up and move.. Welfare/handouts to me are for the genuine needy.. if you are asset rich and cash poor then you
    should be looking to change your situation not expect a handout from the government.
    8) Only in so much that they are in the position as above..
    9) Urban sprawl has to be managed with decent public transport to the new areas to keep congestion down.. me personally i am not a big fan of high density housing..
    bit of space is a good thing..
    10) There is a scheme in existence now that is not being utilised whereby an investor builds a home and offers the home to a low income earner
    at below market rate and gets a subsidy from the government.. hardly anyone has taken advantage of it
    11) Deliberate landbanking to maximise returns is a problem.. the capitalist in me says that is fine..

    Stillgotshoeson
    March 28, 2010
  187. Melbourne Auction Results for yesterday..

    Weekly Auction & Sales Results, Market Overview

    Saturday Match 27th 2010

    The clearance rate today was 84 per cent, a result in line with the year to date clearance rate before today of 86 per cent, well above this weekend last year when it was 77 per cent and the corresponding weekend in 2008 when it was 63 per cent.

    It is clear that as a result of a healthy economy and a stock shortage that the Melbourne residential market is very strong and it has not recorded demand level before easter in recent times.

    There were 881 auctions reported today with a total of 738 selling and 143 being passed in, 70 of those passed in on a vendors bid.

    The combined value of all transactions this week is $812.07m and there a few more auctions expected tomorrow.

    Next week is Easter and under 50 auctions are expected.

    Enzo Raimondo
    CEO REIV

    Stillgotshoeson
    March 28, 2010
  188. Shoes, it is a matter of whether MEL is a national sentiment leader or a follower, or an “irrational exhuberance” (to borrow from Greenspam). In the past it has undoubtably been SYD’s follower.

    In the year up until Feb 10 it could have been held to have been an irrational exhuberance because the national market keeps following SYD but this time with the negative lead.

    http://www.smh.com.au/business/new-home-sales-drop-20100329-r6g0.html

    If you look at mfg sector bank lending into MEL’s traditional economic base in that same sector then you would take that line. But when you visit MEL as I did on the weekend and note that its local multicultural diversity and foreign student and Indian taxi driver populations have swollen you would anecdotally theorise that it has displaced SYD in immigration capital terms. Many of these immigrants however are suburban consolidating in multi family households or shared young single sex households. I have been a frequent visitor to MEL in the decade up to 2 few years ago and had even noted the beginning of this trend, but this visit has reinforced it.

    MEL has a history of releasing plenty of land and in past decades has invested heavily in redeveloping near city industrial for higher density levels than they have in SYD. One MEL trend I have noted among friends is empty nest buyers moving into trendy new city proximate apartments while retaining suburban houses as investment rental properties.

    “Irrational exhuberance” in my book comes back to bank pump priming off the back of debt fueled ponzi services industry activity. The restraint risks to the ponzi bubble are lack of access foreign funding, the risk price if assesed (bubble or commodities price-volume), and capital control policing. I think the MEL example ticks all the boxes to refute supply and demand as the “it” reason or even as the leader in terms of drivers. One thing in the past RE market though is that MEL was far more responsive to negative waves than SYD.

    Here is the

    Sydney Auction Results

    March 27, 2010 by Australian House Hunters

    Total properties:426
    Sold:337
    Withdrawn:29
    Cleared:74%
    Total sales:$285,469,152
    Median:$827,000

    Looking at the detail though shows the former top end suburbs of Mosman & Woollarah-Bellevue Hill-Double Bay-Darling Point doing very poorly. Old suburbs like Strathfield & Lindfield are clearing well but at historically low prices. The jump in prices though is equally evident in what were upper middle income and aspiring rich suburbs in the lesser Eastern Suburbs, the inner west, and lower north shore. These have driven that 827K median and I would guess them to be young DINK middle class speculators with 10% down and vulnerable.

  189. A recent property skipe in Eastern Suburbs in the lower $1 – 2 million price range was the result of the stimulous packages offered recently and incredibly low stock quantity and record low DA approvals. Now April has come and the market has see sudden rise in stock levels, as property owner see their chance to cash in. Although there is much talk of a bubble burst on its way there is much to be said for the old supply and demand. Population growth is strong and the Eastern Suburbs is prim location for this new money. I think we will see a small downturn in the next six months follow by a return to 10% growth mid next year.

  190. I noticed this article was written in Jan 09. And the average house index price has increased by more than 10% in most cities over last year. In conclusion, the houses are becoming less and less affordable.

  191. Australians who dare venture onto american real estate website might be in for a major shock, notonly is housing here beyond absurd in terms of cost-many of the houses we live in and particularly the units would be boarded up and declared unfit for human habitation in all but the worst slums in the US

  192. House prices in all Australian cities are simply ridiculous. We are migrants to Australia and we simply cannot afford to buy a house. One cannot understand what pressure and stress we as a family have gone though by not being able to own property. We will never be settled and consider Australia to be our home as long as we are kept out of the market. I have found that people who own property and are lucky to have little or no mortgage simply because they bought 20 years ago are protectionist and do not realise the social issues that are evolving due to this issue. I also think that when migrants arrive in Australia and experience the reality of this market they will return to their homeland. If they chose to stay it is likely that will spend the rest of their lives renting someone else’s over priced dump. A lack of real action from government and the use of negative gearing will prevent even our children from owning property in this so called lucky country. Your home should not be a source of wealth – so what if your house is worth a million dollars – it is only beneficial if you sell it and go live overseas – come on wake up to reality – looking forward to the day the bubble bursts we need it.

  193. […] Australian House Prices Are Severely and Seriously Unaffordable Jan 27, 2009. Well, it is if you own a house and have a large mortgage on it.. But it really comes down to the mortgage payment….. I had to drop my rent down and still have had no one to rent it out my house in Gladesville. Australian House Prices Are Severely and Seriously Unaffordable […]

  194. The problem is that Australians have had an ongoing love affair with property. The market has been artificially propped up by first home grants etc and now reality is beginning to bite. A house is only to live in but has become a so-called investment. My question to all the would-be property millionaires is this: If there is so much money to be made in property, why bother going into business? The market is going to experience a correction of sorts, and a long over due one at that.

  195. I am keeping my fingers crossed for a major real estate ‘value’ correction. Don’t be fooled as to who’s really in charge of you and me in this country, it is the bank/real estate cartel, of that there is no doubt! Australia…fair go? Give me a break….mate.
    Bob

  196. Crossing one’s fingers is probably more realistic if you’re buying Lotto tickets, Bob & Co. It’s akin to me wishing gold would drop out of the sky (so I can buy up!) or that our cash-in-the-bank could be earning over ten percent.

    Property is an investment. Yes, it’s also a basic necessity.
    That’s a plus to those of us whose assets include property.

    Here’s a localised view, Wisdom Teeth:

    http://www.smartcompany.com.au/wealth/20110104-10-ways-to-get-on-the-rich-list-2.html

  197. http://www.heraldsun.com.au/news/breaking-news/housing-market-conditions-tipped-to-worsen-study/story-e6frf7ko-1225994176644

    GB of Melbourne Posted at 3:27 PM Today

    But? But? How can this be? Property only ever goes up! That what i was told when i applied for my 100% LVR zero equity loan on my 3rd investment property that is all leveraged off my family home! Oh yes, property investors en mass are about to discover they can also claim “capital losses” as well as “negetive gearing” on thier property investments. Trust the mainstream media and Bank e’CON’omists to be about 9 months late with the facts.

    Stillgotshoeson
    January 25, 2011
  198. “Property only ever goes up!”

    And you _believed_ that, Shoes? ;)

    Just had a third _full_ offer on that block. Think we’d better take the sign down in fairness to the successful buyer and subsequent interested parties. All FHBs, by the way… .

  199. Farmer Pete … another big day in the fields …. wear a hat next time .. Sun is frying your brain … Third Full Offer on the Block … Oh please who are you kidding ….

    (Better still why are you selling ? House & now land)

    Why would you even get the call the agent would just say it is sold sorry!!

    Mr Make Believer … Just like your mate Mark of Vic Park calming to own property & turns out it was owned by the housing authority of WA … love the company you keep ….. Pffft

    Not Fooled By property Spruikers Hype
    January 25, 2011
  200. It must be very difficult to have followed Keen’s advice, sold your house, invested the lot in shares… and then taken a direct 54.5% hit, N Fool Punter of Mindarie. I imagine the difficulties you must have experienced explaining that to the T & S, especially as Perth homes then steadily rose afterwards. You can’t afford to buy back in, have terrible difficulty admitting your woes to the world-at-large… and so you now tell us you’re working 24/7 to *POP* the market on behalf of your kids. ;)

    You were enfooled years ago. It would be great to think you’ve learned _something_ from that awful error of financial judgement which has cost you your home, but I doubt it.

  201. Agent? What _agent,_ dimwit?

  202. I reckon Dan Denning is mistaken when he says “Property always goes up”. Though in fairness, he has been right for the last 4 years or whatever it is that he’s been saying it! :D

  203. FARMER PETE …. Sell Sell Sell … This time last year you were Buy Buy Buy …. Buy Land Build add value & sell make a MOTZA …. Now you know no matter what you build on it nobody will buy it …The Gig is over …. DUMP DUMP DUMP … HA HA HA … Mr Fantasy property developer Beach Lots for First Home Buyers??? ….. Where South Geraldton!!! …. Dream On!!

    What agent? … The one the bank assigned to get the house in order>>> Tee Hee HEE

    Not Fooled By property Spruikers Hype
    January 25, 2011
  204. “Agent? What _agent,_ dimwit?”

    Your complete naivety is no surprise, Punter of Mindarie Fool.
    Your lack of comprehension is predictable, though. Reread that line you skimmed over in your haste to fire off _any_ old response at all:
    “Think we’d better take the sign down…”

    Clueless… . ;)

  205. Who was it who said “It’s not very entertaining to see a chap pitted against an unarmed opponent in a battle of the wits”? :D

  206. One thing about DRA, it’s always good for a giggle regardless of what’s happening in the world of high finances and sovereign debt crises and asset prices and banking and ‘flations and bullion and the cost of a can of baked beans! Cheers Biker … ;)

  207. “…it’s always good for a giggle…”

    And to be fair, DRA prints nearly _all_ my responses…
    at least 99.5% of them, I’d guess.

    The Witless Wonder? His ability to fabricate is unfathomable.
    Take this little gem, above:

    “(Better still why are you selling ? House & now land)”

    How/why the flick does he assume I’ve just sold _a house?_
    His flights to fantasy flow like effluent… .

  208. Yeah, he just doesn’t have great listening skills Biker. Takes all types though hey? Ah, the Prozak morphs should try Port (or in my case tonight, McWilliam’s Royal Reserve Muscat) – A jolly fine drop for the price! :)

    Don’t know if you have Curtain Wonderland over your way? They are moving out of selling lace for curtains by the meter over here – Doing pre-packaged stuff instead. Which seems to be MUCH dearer. After some hassle I really didn’t need, it seems Spotlight still sells it by the meter. (Or bolt.) In a 3/4’s reasonable range of drops.

    More painting after I hang some more curtains tomorrow maybe??? Wouldn’t want Not Fooled and his ilk to have to live in hovels hey! :)

  209. “Wouldn’t want Not Fooled and his ilk to have to live in hovels hey! :)”

    Continual references to caravan parks by his previous main persona do suggest that he blew his stash badly… . I imagine there may be thousands led down the garden path by Keen, who then whacked the lot into a rising sharemarket. From his references to Bangkok artisans, it’s a fair bet _he_ wasn’t forgiven for that blunder.

    Normally one might commiserate, but the bloke’s a whining whalloper. :D

    Cheers, Ned!~

  210. I only really like caravans if they are in the bush Biker. They can make a damn nice home there if they have a concrete slab under and all round them with a corrugated iron roof over the lot including an ablutions block in one corner. And some bench seats that have been pulled out of wrecked cars near the darts board and beer fridge. Though I’ve found that not all ladies always agree? Well, not for long term living anyway! :D

    Yep, ni nite and cheers mate!

  211. Happy Invasion Day!

    It’s diffrent ear.

  212. Comment by Biker Pete on 25 January 2011:

    “Property only ever goes up!”

    And you _believed_ that, Shoes? ;)

    Just had a third _full_ offer on that block. Think we’d better take the sign down in fairness to the successful buyer and subsequent interested parties. All FHBs, by the way… .

    You seemed to have failed to think outside the square (again) Biker.
    Mainstream newspaper is printing an article the heads Property to Fall in Value..

    Not a softening, not a small period of stagnant growth with a return to growth.. Header reads that Property is going to fall.. I would put it to you that that has just increased the negative sentiment that has been building.

    No you reply with, may be I am mistaken… tone of your post is hard to read in black and white.
    However it comes across as an arrogant stance that you Biker Pete and you are going to be ok.
    Now you may well be, and your properties that are always for sale will be withdrawn if there is a downturn in prices. Your not highly geared, well two properties are a little higher geared you have stated before. You have excellent tenants paying fortnightly rent so you are going to be fine….

    I think Biker Pete is going to disappear into “Anonymity” over the next year or so, the fall in house prices will be egg on your face… Just saying.
    Articles say Perth is in trouble, Perth is a small market compared to Sydney and Melbourne….

    Stillgotshoeson
    January 26, 2011
  213. “I think Biker Pete is going to disappear into “Anonymity” over the next year or so…”

    What we’re experiencing is a surge in 457 Visa buyers and purchases by FHBs, Shoes. To us, this appears to be the recovery from that vacuum left when over 200,000 families took advantage of the FHOGs. We think it heralds the first beginnings of a larger trend, at least across WA.

    As for my ‘arrogance’ and likelihood of ‘disappearance’, may I suggest you occupy a fairly fragile glasshouse, having recently made five silly predictions about 2011? (You may actually get one-out-of-six right! ;) )

    Why do you insist on bringing a knife to a gunfight, MafiaWars Man?!~

  214. See that’s the difference right there, I don’t care if I’m wrong… Your ego is too big.

    “We think it heralds the first beginnings of a larger trend, at least across WA.”

    I think your wrong…. time will tell

    Stillgotshoeson
    January 26, 2011
  215. Ahhh, but you DO care, Shoes.
    You’re the Shoeless Wonder’s Apprentice, remember?

    Like me to repost your last burst of enraged dribble, after I’d corrected you last time?

    Minus One the best you can do, son?!~ ;)

  216. The Chinese and Ben ‘chopper’ Bernank are on their way to far north of qld, the ‘port’.

    More than 160 properties over the 1mill mark mostly between 2.5 & 5mill. Nothing moving. More than 800 for sale just in port. Thousand are waiting to list when property prices start to climb again. Good luck with that.

    Course bi_ker peat spruiking the place a while ago did zilch.

  217. “Course bi_ker peat spruiking the place a while ago did zilch.”

    Enjoyed a holiday there, Prozak. Didn’t buy anything.
    You ought to get out of that tiny apartment and travel, Pill Boy.
    Exercise. Get some of that lard off your arse… .

    Your fantasies of buying something “…between 2.5 & 5mill…”
    are an indication you need more than meds. ;)

  218. Comment by Biker Pete on 26 January 2011:

    Minus One the best you can do, son?!~ ;)

    Wasn’t me oh deluded one…

    Stillgotshoeson
    January 26, 2011
  219. “I think you’rE wrong…. time will tell”

    Spend some time reading through all the above comments since Dan first wrote this article on 27th January 2009.

    Time _has_ told, Shoes. You’ll find that ‘time-will-tell’ comment there over a two-year period. While you’re reading, consider the many delusions expressed by bears like yourself.

    None are as delusional as your own prophecies for 2011, which we will revisit; but it’s an exercise which demonstrates the sheer futility of attempting to ‘wish’ economies into recession simply because it’s easier than planning and _working_ steadily towards goals.

  220. Blame Mr Johnny Howard people, for the potential dire long term prospects of the property market. Open slather and short term gain=greed. It was predicted back then but no body could see it for the trees that were heading to the mint. Kept everyone happy and everyone thought it was a marvelous period. What goes up, must come down, and unfortunatley for us it is a long way down. You could afford a house relatively comfortably in the nineties despite higher interest rates. Any little surge in interest rates impacts greatly today due to houses being over six times what they were back then. Doesn’t take a scholar to work that out. We are no doubt caught in a very vulnerable stream of uncertainty. There are doomsayers, realists and those that find comfort in optimism despite uncomfortable circumstances.

    Troy Williams
    January 26, 2011
  221. Beyond a certain level (cost of constituent materialsand labor) the property market is a ponzi. For the market to keep going ‘up’ it needs to draw on fresh supplied of cash. To me this would mean:

    -Existing investors leverage in more deeply. So either that the negative gearers coming back or another strong ‘upgrade’ cycle.

    -Fresh investors from either overseas or locally. Oversea’s investors have been in the past strong, but new legislation make this more complicated for them, plus their numbers are actually quite small. This leave fresh buyers, which we saw targeted by first home buyers grants. Lastly, there is the, probably, jaded group of ex house owners who either lost their homes or sold out hoping to avoid the mean reversion to 5:1 (Even if they just call RE ‘too expensive’).

    Pete, I’m not convinced that wages are rocking, new home buyers are booming (more than immigration + growth which is already baked in). I don’t see the world market decending on Aus when numerous reports abound on AUS’s overbought condition. So, I’m not sure where the new bidders will come from in suficient numbers to cause RE to continue to climb. (This is not a crash prediction).

    If you read ZeroHedge, you’ll realise the number of near misses our property market is having, via contigation is increasing in number daily basis. Our finance is not an island, and the world literally is breaking down, piece by piece. Watch 7,9,10 news and you’d never even know that governments are toppling around the world. Riots are spreading. China is having a mini GFC internally (in the past 24 hours) as bankbank lending dries up. The Baltic dry is still falling. None of these yet is a black swan, but conversely, none of these problems is reversing, they are just adding up. Were you aware that in the silver \ gold markets the huge wars going on in the past three weeks, there are a group of traders trying to force a COMEX default. That in itself could be the black swan… things are getting really dangerous in the international markets, and I personally see this as a _really_ dangerous time to walk like a lemming in to a 30 year commitment that assumes the world in the next 30 years will be as stable as the last (and that you’re the highest bidder to boot).

    If nothing else consider the rise of oil in the past few months and the cash it removes from the economy is a reduction in buying power. Lets imagine that if oil continues and pulls away 5% of your buying power, then a yuppie couple on 10k a month just lost about 80k in buying power for their next mortgage. Bearish dude, again, not crash inducing, but supportive of lower sell prices for sure.

    Chris in IT
    January 27, 2011
  222. Interesting points, Chris.

    I rarely comment on east coast property. Your two main cities aren’t the niche we specialise in. If there’s going to be a correction, it may well occur in Sydney and Melbourne.

    Disagree with some of your points, however:

    “- Existing investors leverage in more deeply.”Investors in my age bracket have done the opposite, either through paying down debt, or in the case of large, well-located homes, downsizing. Shoes’ comment “…two properties are a little higher geared…” was correct two months ago. We paid $180K off those. We’ll pay a further $740K off in April. Not only will we be out-of-debt on the majority of properties, but every property will carry sufficient offset to pay it off completely. There are a sufficient number of BBs (tapeworms, as N. V. Prozak calls us) able to do this.

    “- Fresh investors from either overseas or locally.” That’s exactly the trend we are experiencing. All three of our recent _full_ offers on a block came from FHBs, at least one of them (the successful purchaser)a cashed-up 457. In the area in which we invest, there’s (now) a scarcity of top blocks. We believe that once they’re gone, houses around $400K – $500K will attract the same demand. Note that we’re not highflyers buying scores of million dollar homes. We buy and build what we know we can resell for a (modest) profit. We’re happy to accept 10% per year, despite having easily exceeded that much of the last three decades.

    Wages are rising, here. So are rents. My sister (55), who once stated (after having split, sold the family home and sat years in cash) that she’d _never_ buy another house, is now trying to get back into the market around $500K. Her rent is $550pw (and rising). Not a great prospect facing retirement… .

    I accept everything you say about fuel issues. They could constitute the real Black Swan. We know that some far-flung US suburbs became ghost towns the last time fuel prices leaped. In my view, that may well be an issue.
    It may also be the catalyst that quickly drives development and production of EVs. It won’t be overnight, but it will happen… . ;)

  223. I a lot of China, the Chinese who visit the west are reporting local food \ consumer prices have risen more than 100% in the past year across the board. QE is breaking China. If China needs to depeg there will be carnage as their tight exporter margins can only track the currency price, which means some of their market will be destroyed.

    If they continue, the food riots will likely start there as well. Either option would be indicative of a major slowdown in commodity imports, and hence our money inflows.

    This is the kind of thing that could flatten our market. I mean, look at the US, what terrible thing happened to cause them to lose in places ~50%? Not EVERYONE was subprime, in fact subprime loans as a percentage of the whole market was relatively small. All they needed was lower employment and a general expectation that ‘things were not good’. Since the GFC, property has declined, every month beating the previous one… and with repo inventory so large, it’s suggested that if the economy picked up today, they would need at least 5 years to clear the backlog which would hold prices at current levels.

    Why? Excess leverage in the housing market of course! Ours is higher than theirs ever was, and our economy more susceptible to external influence than theirs. Just look at the AUDUSD compared to say EURUSD in terms of percentage change, or AUDUSD vs USDX. A ‘big swing’ for the us is a 10% drop, for us, its more like 40%. We are far more exposed to external events than they are.

    Pete, perhaps you can help me out…

    “Time _has_ told, Shoes.”

    Can you show me an RE market anywhere in the world that has managed to sustain a 9.5:1 RE Value:Earnings ratio in the long term? One where houses didn’t fall, and inflation allowed earnings to catch up. You see all RE bubbles from what I have found always revert to mean.

    I’m happy to be shown how wrong I am and learn from the experience. (Honestly!).

    In fact, can anyone either show me some data that indicates that we can even grow property beyond 10:1? What can we do? How could we get to 15:1? China did! (Of course they are in a speculative bubble, and can’t even RENT their property out now at those prices…).

    What about increasing wages so that borrowing capacity is increased? We can get increased wages either from growing business in a world on fire, or by devaluing the currency so everyone has more units (Not that QE reinflated the US bubble)…

    I don’t know, I’m not an RE kind of guy. What am I missing? Why are you guys so damn bullish? Sure, people ‘need’ somewhere to live, but the price paid is not based on ‘need’ or else it would properly reflect materials+labour.

    Chris in IT
    January 27, 2011
  224. “Not a great prospect facing retirement… .”

    This is one factor that renters need to consider. By the time my generation (X as it;s known) is ready to retire, we know point blank there be no pension, and probably no rental assistance. Be nice to your kids if you’re a lifelong renter ;)

    “If there’s going to be a correction, it may well occur in Sydney and Melbourne.”

    My wife and I about a year ago decided to check all capitals for IT job payscales vs property prices and found very little reason to leave Sydney. The differences were marginal. I think Adelaide won out slightly, but who the hell wants to live there ;). It was around this time that we started looking at ‘most expensive cities to live’ world reports and found every aussie capital to be right up top of the list. Even Darwin! WTF!

    I expect that anything that hits australia will affect most capitals hard (excepting localised natural disasters, etc). Obviously some capitals rely on some incomes more than others based on their markets (mining, tourism, food exports, etc). But overall, if you take money off the table at a national level the highest leveraged will peel off fastest (or be pushed out by default). In trading is this is known as weak hands. Looking at somersoft on property rags I would be surprised if there was not significant monetary outflows from cities in to developing coastal and non capital city property. So many these days are look from positive gearing that that are fairly difficult to find now. The lack of positives is a good indicator of spec money following the easy gains, and of course, the specs are who the strong hands will be hammered by as they rush towards the exits.

    Glad to hear you are killing off debt. Leverage in trades or RE used to make it harder for me to sleep at night…

    “I accept everything you say about fuel issues. They could constitute the real Black Swan.”

    I think the property definition of a black swan is that it is totally unexpected. Perhaps a black swan for the common man, but only relating to peak oil flow’s. I think the man on the street accepts that higher fuel costs feed in to inflation.

    When on the hunt for Black Swans I look for things that we assume are rock solid, but may have structural weakness that could possibly cause feedback loops. Things like massive increases gold holding by CB’s or trading gold for objects are a sign for example that they would prefer not to hold foreign cash. That mentality is self reinforcing and self perpetuating and could lead to fiat currency moving in to a crack up boom as foreign dollars flood the home markets and fail to find a confident holder.

    Chris in IT
    January 27, 2011
  225. Many points raised here, Chris. Travelling north and will respond later when we reach our first rest stop. A property market which has excelled? Western Canada appears to have matched our resilience, if not exceeded it. ;)

    Meanwhile, mixed messages for us in this article:
    http://www.watoday.com.au/business/wa-boom-to-be-smaller-and-more-dangerous-20110125-1a46v.html

    Later…

  226. Was just about to post that link Biker. As I thought some, including you, would be interested.

    Sounds like for those that can, dragging one’s butt over to WA and earning some serious dollars is going to be the way to go.

  227. Reports on future earnings and projects are based on assumptions that the world will behave enough like it did in the past to ensure that models can be built on modelled data. Without this modelled data and future projected earnings based on past performance and ‘ideas of demand sources’ on the future, the projects would not be funded.

    If the world is becoming so unstable you may ask, why do they do it? We’ll they are miners! That’s their play and that’s what they know. I expect a miner is less concerned with structural credit problems in China that’s funding the projects that create the orders. Think about it? IF you’re a miner and you have a shareholder responsibility to pay nice dividends YoY then you can’t just retract your capital and sit out for a while because some other market ‘looks bad’. If they did that they faced a much larger risk, of their competition eating their future projects.

    But of course I could be wrong, and China will sustain GDP growth of 10% well in to the future!

    Chris in IT
    January 27, 2011
  228. Don’t swallow the crap about “there won’t be a pension” Chris – Even Russia has an aged pension:

    http://www.terradaily.com/reports/Russia_Has_Become_A_Nation_Of_Pensioners_999.html

    Though whether one will personally enjoy living on the aged pension is another issue altogether. As is the age at which one might become eligible for it.

    As to life long renters having no home of their own in retirement? Shoes is onto something there IMO – Use your super to buy your future retirement home. IF necessary. Truth be told super just represents a lot of the money Aussies would have paid for their homes before we had super anyway. Though one doesn’t buy at current prices if one is bearish of course.

    I’m bearish because I reckon prices generally are at the point where neither FHBs or investors are likely to be buying en masse. Cheaper for FHBs to rent as you say. And the rental returns just aren’t good at all. So investors need to be relying on capital gain. With Glenn Stevens having told us that’s a risky game to be playing at this time.

    Though I now also accept that major declines in property prices very well could be fought very actively by government. Though we won’t see any such measures taken unless/until we start to see Sydney and/or Melbourne prices being affected I’d say.

  229. “Don’t swallow the crap about “there won’t be a pension” Chris – Even Russia has an aged pension:”

    Pension systems rely on future generations to look after current populations. This means that with increasing lifespans you need bigger ‘current’ workforces as time moves forward or higher taxes to maintain existing services. (As you say, not that it’s all that enjoyable.).

    I just don’t think our nation has the planning to work out how get us all fed, hence Superannuation. To me, super is a clear indication that you should stop relying on someone else to pay your bills. Initially it existed as a tax for the employer, then over the years has grown and become part of our ‘Cost to Company’, a part of the package.

    Shoes, may well like to spend his life savings buying a house, but to make that assumption and ignore the fact that you will still have to eat is a big gamble. :) Unless his SMSF target is WELL beyond future house values. (In which case he should give up on waiting for a market crash ;))

    In 1960 population was 10m. Today it;s double. Can you see it at 40m in 50 years? These guys don’t:

    http://www.populstat.info/Oceania/australc.htm

    “Cheaper for FHBs to rent as you say. And the rental returns just aren’t good at all. So investors need to be relying on capital gain.”

    Exactly. Years ago having a convo with a mate who was negative gearing. I suggested that he was subsidising rent on ‘hoping’ for capital gains. He would probably have better odds as Star City…. 3-4 years later I took that t heart and for my inner city home, allow someone else to pay the difference between rent and interest payments. Indeed, if you look at the rates, this is about as good as it gets historically, the rentmortgage spread just widens from here. I bank the difference in to my SMSF (As policy that forces savings) and eliminated all debt.

    I also noted that my habit of moving ever few years was costing us more in Stamp duty than you would possibly care to know.

    “Though I now also accept that major declines in property prices very well could be fought very actively by government. ”

    Agreed. However, looser rates doesn’t really make things better does it, except for the mortgaged. Certainly not in the US and UK. Conversely, inflation will counterbalance this action as well as adjusting AUDUSD rates downwards which is exaggerated as carries unwind.

    If the AUDUSD moved back to 0.60 relative gold\silver values will almost double.

    Chris in IT
    January 27, 2011
  230. Comment by Ned S on 27 January 2011:

    Shoes is onto something there IMO – Use your super to buy your future retirement home. IF necessary. Truth be told super just represents a lot of the money Aussies would have paid for their homes before we had super anyway. Though one doesn’t buy at current prices if one is bearish of course.

    Even bearish, buying now with super is Ok for some..
    1. Gives you an opportunity to buy the house “you” want.
    2. Age plays a big part, as I have said before, if your 30 to 40 and you buy now and property dips, you are young enough to see your property regain value.
    3. A home should be seen as shelter and security first, not as an investment
    4 Buying now with your super means you get a property in your SMSF before the government changes the rules.. A likely scenario in the future, Changes in rules unlikely to be retrospective.

    Stillgotshoeson
    January 27, 2011
  231. Comment by Chris in IT on 27 January 2011:

    *Superannuation Initially it existed as a tax for the employer, then over the years has grown and become part of our ‘Cost to Company’, a part of the package.

    Not true it was paid for by employees in Keatings wages accord.. Pay rises were apportioned to Super and employees over time.
    When it rose from 7% to 8% then 9% EBA negotiations took in account of the increase costs to business

    Stillgotshoeson
    January 27, 2011
  232. “QE is breaking China. If China needs to depeg…” ?

    http://www.ibtimes.com/articles/105490/20110126/30-chinese-provinces-raised-minimum-wage-as-inflation-soars-gt.htm

    an excerpt….

    “Tianjin is considering raising the minimum wage by 16 percent. Jiangsu, Guangdong, the municipality of Beijing, and the municipality of Chongqing also indicated they will raise minimum wages.

    For Guangdong, they are considering increasing it by as much as 18.6 percent.”

    Crumbs 18.6%.
    “Um ah, I’m telling. Mummy look what Ben did.”

  233. Comment by Chris in IT on 27 January 2011:

    Shoes, may well like to spend his life savings buying a house, but to make that assumption and ignore the fact that you will still have to eat is a big gamble. :) Unless his SMSF target is WELL beyond future house values. (In which case he should give up on waiting for a market crash ;) )

    Well at least you understand Chris……… The above concept is lost on Biker.
    I am bearish on property, however if I find a property I like I will buy it through my super and rent it out regardless that it may decline in price in the shorterm. I don’t view it as an investment. Live in it till I die, the kids split it between them, it’s dollar value is irrelevant to me.. A decline in property values is not what has held me off from buying, where I want to live and what I want to do when I retire are more important considerations.

    So far my investment strategy has outperformed the (Melbourne) property market,
    I rent a 3 Bedroom Unit with Double Garage, 2 living areas for considerably less than “market” value.
    For now I see no reason to leave where I am, especially with definitive signs of a cooling in property prices in Melbourne… price reductions of 10% to 15% are common now.

    Update on that house on 1/2 acre Ned. Owners are renting it out and moving in with her parents while they finish off the one they are building..

    Stillgotshoeson
    January 27, 2011
  234. Chris: “In 1960 population was 10m. Today it;s double. Can you see it at 40m in 50 years? These guys don’t:

    http://www.populstat.info/Oceania/australc.htm

    Those are quite dated guesstimates Chris. (See bottom of link.) 35 m in 40 years time is about the current target as I understand it. So 40 m in 50 years sounds close enough maybe? So far as one can make such long term guesstimates.

    “looser rates” – There could be that, but I was thinking more in terms of major policy change like allowing interest payments on the home to be claimed as a tax deduction. (Biker has mentioned it in previous posts as a possibility and while it was rejected by Plibersek in 2008 as ‘inequitable’, I surely wouldn’t put it past guv if they do hit a major housing correction.)

    “If the AUDUSD moved back to 0.60 relative gold\silver values will almost double.”

    The last time the AUD went close to 0.60 USD, silver went to about USD 8 per oz from memory. With that only being about 2 years ago.

  235. All interesting reading!~

    On No-Pensions-in-the-Future: We were predicting the same 40 years ago, Chris. Fortunately I acted as though it was true… and, thanks to Super, we’d be comfortable for life if we had nothing else but Super.

    On the Missed Purchase, Shoes: The owners have done the right thing!~ :D

    On the question of “Why are you guys so damn bullish?” It’s what we know, Chris. Here are some points of interest (to us, anyway): In over thirty years buying, selling, building, we’ve never once lost money on property.
    More importantly, we believe no-one we’ve ever _bought from_ has lost money. Some years we’ve bought as many as five properties, others none.
    We believe that there have been several cases where a _developer_ has made far less than he’d have liked. Our last two block purchases fall into that category. _We’ve_ made the money he conceded… .

    Property is tangible. It’s like gold, in that respect; but it has several advantages gold doesn’t. You can live in it. You can help others pay it off for you. Unlike gold it will enjoy government intervention and great tax advantages. (You miss the real point about Chinese realty. It’s their choice to hold without renting… and they frequently pay cash. They’re mostly not negatively geared. They’re speculating on capital gain.) Here Shoes and I would agree: Houses should be lived in. Shoes lives in a house. He’s helping a friend. Cue Shoes, here. ;)

    Probably enough for tonight. Cheers, all!~ :D

  236. Farmer Pete … It is called DUMB luck!!

    USA starting to double dip …. our turn will come …. ?

    Keep Spruiking this type of behavior is expected from a drowning man!!!

    Comment by Biker Pete on 27 January 2011:

    Many points raised here, Chris. Travelling north and will respond later when we reach our first rest stop. A property market which has excelled? Western Canada appears to have matched our resilience, if not exceeded it…..

    2 things .. 1) How tragic on holidays but still needs to SPRUIK…. 2) Canada just reduced max loan terms from 35 years to 30 years (Down from 40 years) takes effect March 18th it is causing a mini boom & then POP!!

    Not Fooled By property Spruikers Hype
    January 28, 2011
  237. Gawd, yet another angry troll!~ Get over your string of life failures,
    N Fool Punter of ‘Mindarie’. As I’ve explained previously, ‘punting’ is a poor substitute for a plan and a purpose. _Every single guess_ you’ve ever made about our circumstances has been wrong so far.

    Holidays? Who is on ‘holidays’? Another punt, another blown bet… . :D

  238. “Farmer Pete” – Don’t you like farmers Not Fooled? Not that Biker is one. (And I bet you haven’t found that link where he claims to be a builder and/or developer yet either!)

    “It is called DUMB luck” – What’s called dumb luck? Being a property owner do you mean????? Don’t think so brother! It’s called years of bloody hard work.

    “USA starting to double dip” – If Roubini isn’t pointing the bone at your economy it really probably isn’t too likely to die just yet …. ‘Britain and the weaker nations of the eurozone remain vulnerable to the risk of a double-dip recession, even though the rest of the world economy is recovering from the global economic crisis, leading US economist Nouriel Roubini warned today.’ (2 days ago now actually):

    http://www.guardian.co.uk/business/2011/jan/26/davos-global-economy
    “our turn will come” – About 2060 perhaps? With some ups and downs in between. GO ASIA!!! :D

    “Keep Spruiking this type of behavior is expected from a drowning man” – I’ve never seen ANYONE spruik like Not Fooled!

    “Travelling north” = “on holidays” – Yep, the leap in logic is truly fascinating!?!

    “Canada … mini boom & then POP” – Didn’t see Roubini singling the Canucks out either?

  239. The silly assumptions made by N Fool, The Punter of Mindarie, are quite staggering, rivalling those made by N V Prozak (you’ll recall he punted that I was a Kiwi actor living in Sydney.) This ‘Mindarie’ Fool decided some time back that I was a bank clerk, living in ‘Wannerroo'(sic), 30 km north of Perth. As I type, it’s burning, BTW.

    He has pursued both wrong assumptions repeatedly, in PerthNow. He has this need to ‘label’. Our hobby is realty, so we’re ‘developers’ or ‘builders’.
    He hasn’t decided which yet, Ned! Our garden orchards include 300 fruit, nut and olive trees, so now we’re ‘farmers’.

    It’s this very kind of generalising and stereotyping which has cost him a$$ets in the past… and should do so in the future. He’s a timewaster.
    Your suggestion re his lack of potty training gave us another good laugh, mate! :D

  240. Song for farmer Pete….

    (Sung to ABBA … Winner Takes it all) …I dont wanna talk…About Property Prices Falling Through…Though its hurting me…Now I am history Ive played all my cards…
    And thats what I need you to do…Nothing more to say…No more ace to play …..The Bank will take it all…I am a FOOL standing small…Thoughts of victory…Now just look at me… at my DESTINY……
    I was in this mugs game…Thinking I belonged there…I figured it made sense…I was building me a fence…Building me a home…Thinking I would be strong there…But I was a fool…Playing by Spruikers rules……
    The BANKS will throw the dice…Their minds as cold as ice…And a SPRUIKER way down here…Loses all thats DEAR…
    The BANKS will take it all… were heading for a fall It is simple and it is plain…How can SPRUIKERS Complain …
    the banks they must abide … they know they cannot hide…The Banks they must obey……They simply have no say…
    I don’t want to talk about Property prices falling through , though its killing me , I am history …. The game is on again…Property is not their friend…A big thing or a small…No winners here at all…

    Not Fooled By Property Spruikers Hype
    January 28, 2011
  241. Probably too soon to advise Centrelink you’ve got a Number One Hit there, Fool. Let me guess the name of your group: Lost ASSettes? StingK? Johnny and The Whiners? Since you’re moving the offspring to Dublin, Cork, Miami or Phoenix soon, how about the Ex-Pats? Yep, ‘Patsy & The Ex-Pats.’

    As I say, probably too early to quit social security… . :D

  242. Not fooled. I am interested in economics and read most stuff on the net on shares and housing. However I have never struck a blogger as obsessed as you – your blogs are everywhere. Please listen – I hope you will read this. You have far too much skin in the game. You are obsessed with property prices. All your blogging does nothing as property isn’t a market that you can manipulate. The market is formed by buyer and seller many times each week all over Australia – how can you possibly hope to infulence all of those transactions? It is just money at the end of the day and you can’t take it with you when you depart this earth. You are headed for an early grave my friend. Change your life before its too late. Head to church and seek your creator. In Him you will find freedom from your obsession.

  243. Alas Brian .. The Lord Helps those who help themselves? ….. The market is formed by Property Inc pumping out their same messages each day … this goes unchallenged …. said often enough it becomes fact … that is why they do it … all I do is offer a challenge to what is said … You are aware there is no God? … It is a unsubstantiated myth? … Easter Bunny (no) Santa (no) Tooth Fairy (no)

    Not Fooled By property Spruikers Hype
    January 29, 2011
  244. Not Fooled: “… said often enough it becomes fact …”

    So the rest of us get to put up with your one person attempt to talk down the housing market? As opposed to discussing what could happen and why. Lucky bloody us!

    Yep, you are a time waster alright.

  245. Not Fooled: “… said often enough it becomes fact …”

    On the same intellectual level as Bart Simpson’s:
    “You didn’t see me do it, so you can’t prove it…”

    Childish supposition by a persistent liar, who elsewhere stated “Two wrongs don’t make a right!” but here argues that if he lies in _greater_ volume, his nonsense will be transformed into truth.

    You probably need to dedicate all your spare time to alchemy, N Fool Punter of ‘Mindarie’. :D

  246. “All your blogging does nothing as property isn’t a market that you can manipulate. ”

    I agree with Brian (Ignoring the God solution). Why not just buy gold and step outside the leveraged insanity? Then you can calmly step back and have a bit of a giggle at all the leveraged players trying to arb CG vs interest before the implosion… Realistically this is not much different to trading 10:1 on margin.

    Only imagine you were trading something so illiquid that if a market reversal occurred you’d have to wait months to close the trade… with no stop loss and full responsibility of the negative balance. Ouch!

    Chris in IT
    January 29, 2011
  247. “You are aware there is no God? … It is a unsubstantiated myth? … Easter Bunny (no) Santa (no) Tooth Fairy (no)”

    Whilst I dislike most of what you say, part of that post hit one of my bells. I’ve always thought it interesting that Santa Claus is pushed on to children. As parents we know it’s a lie. All in good fun we say to ourselves. It gives the children a sense that the world is mysterious but in particular:

    – An invisible (to the child) man watches everything you do and judges you. You will not be rewarded for ‘bad’ behaviour. ‘Bad’ is what the childs authority figure says it is.

    – Bad children are punished with not only no reward, but receive coal.

    Around the age that a child ‘grow up and out of this belief’ they are instilled with a new invisible man that provides gifts and punishment for not following the rules. Again, the rules are provided by an ‘Authority’.

    It’s all a little too correlated in purpose (mental control) and implementation to be a coincidence. But despite this, people would rather think that one is childish and the other isn’t. Odd isn’t it? This is why, as an Atheist, I’m not inclined to try to shake the children out of believing in Santa, nor the Adults out of believing in a god(s). I really do like watching my kids eyes light up, and the adults are cute too, all wide eyed and childlike in their belief.

    Chris in IT
    January 29, 2011
  248. “I really do like watching my kids eyes light up, and the adults are cute too, all wide eyed and childlike in their belief”

    Having no real faith in anyone or anything other than oneself and a few close friends and family (to the extent that one is able), isn’t a road I’d wish on most in any sort of hurry. Though I do see it is the only wise course to ultimately aim towards.

  249. The number of properties for sale has dropped 12 per cent in the past month but Perth’s property market is still starting the year with a 27 per cent oversupply and 47 per cent more listings than this time last year.

    A combination of lagging sales, interest rate rises and political uncertainty resulted in Perth’s market being flooded with properties last year, with a 70 per cent rise in listings from 10,372 in January to 17,326 at the end of November.

    From
    http://tasmanianrealestatetrouble.blogspot.com/

    Stillgotshoeson
    January 29, 2011
  250. “…you can calmly step back and have a bit of a giggle at all the leveraged players trying to arb CG vs interest before the implosion…”

    Yes, we too giggle at property speculation. Is the ultimate expression of that folly the (apparently few) Chinese who speculate, _leveraged,_ buying homes which remain unleased, until sale? Shoes contends that the practice of speculation is rife in Melbourne, citing examples of gamblers who buy million dollar homes returning poor rent, in the hope that these homes may quickly appreciate. We’d have to agree this is gambling.

    Contrast these practices with the careful acquisition of quality homes around the $400K mark, returning $400pw, in highly-sought locations (low unemployment, high wages, virtually zero vacancy rates). Now ensure that a.) there’s a high percentage of equity… backed by b.) offset accounts, returning 7.1 – 7.25%, tax free. (Some may be paying 7.8%.)

    I’ve no issue at all with your preferred choice, gold, Chris. (Admit I do have a laugh at the $6K/oz crew, but that’s extremism equivalent to high leveraging of property, in my view.) I’ll still contend that the way we manage risk on property makes it a safer investment than the purchase of gold. Rest assured that if _your_ scenario wins out… and gold returns exceed rentals + annual tax return cheques + capital gains, I’ll readily acknowledge your foresight, online. While our chief problem is capital gains (despite our capacity to roll up to $900K CGT into Super every three years) it’s a nice dilemma we just have to face with a grin. :D

  251. Shoes: “The number of properties for sale has dropped 12 per cent in the past month but Perth’s property market is still starting the year with a 27 per cent oversupply and 47 per cent more listings than this time last year.”

    Gawd, West Aussies are _doomed*_!!~ ;)

    * Wonder if buyers might be waiting to see which of two FHBGs (Buswell’s or Burke’s) will be adopted? You’ll be aware of the critical difference, Shoes?

  252. Biker Pete. I made no comment on the article one way or the other, merely brought it to the attention of others..

    Stillgotshoeson
    January 30, 2011
  253. Chris, I am a child too.
    Religious institutions, individuals and atheists too are capable of burdening themselves and/or others with guilt. But morality, possibly apart from some concepts eg murder, run off with neighbours wife etc, varies between individuals.
    While individuals and institutions may say otherwise, even Christ did not view himself as good.
    “Why do you call me good”? Jesus answered”. “No one is good, except God alone.”
    It would appear that if you leave men alone on a planet they are adept at burdening themselves and others with all type of guilt. And a group can use this to gain power over others however they are only exploiting an existing weakness in men.
    Christ gave up his life to serve God who desired to save people from the burden of their own guilt. He loved his fellow man including his enemies who nailed him to the cross. The benefit of forgiveness has become apparent for many albeit childlike ones.
    Christ was not self-righteous…”why do you call me good?”
    There is a difference in forgiving oneself and knowing Gods forgiveness. And only known to some wide-eyed, children. “God was pleased through the foolishness of what was preached to save those who believe”
    “…Christ crucified: a stumbling block to the Jews and foolishness to the Gentiles.”

  254. Clearly I’ve misunderstood your continuing interest in WA property, Shoes. ;)

    For those who are interested and want to google the facts, it’s _Bourke._
    Buswell will announce whether FHBGs will apply to all residential property, or merely to land, soon.

    If I was a FHB in the market for a home up to $450K, I’d be waiting to see if there’s a $20K grant in the offing, too. :D

  255. @ Farmer Pete …

    “if he lies in _greater_ volume, his nonsense will be transformed into truth.”

    Point out 3 Lies …..

    Forget the Rhetoric ….. Easy statement to make …..

    Cowardice not to back it up when challenged!!

    Actual Lies … not difference in my opinion to yours ….Facts as well please of King of Rhetoric

    Not Fooled By property Spruikers Hype
    January 30, 2011
  256. @ Farmer Pete …

    “if he lies in _greater_ volume, his nonsense will be transformed into truth.”

    Point out 3 Lies …..

    Forget the Rhetoric ….. Easy statement to make …..

    Cowardice not to back it up when challenged!!

    Actual Lies … not difference in my opinion to yours ….Facts as well please oh King of Rhetoric

    Not Fooled By property Spruikers Hype
    January 30, 2011
  257. Farmer Pete clutching at straws again … wait for the two “B” FHBG that will stimulate the market … just like the USA tax credit … worked for a few months ….then left all these new buyers facing a double dip ……

    Why cant the housing market in Perth stand on its own two feet without artificial boosts to support it?

    This is the market you have all your eggs in?

    Dont forget 3 lies!! you claim I post lies … the challenge is there to show 3 ….You must have them at your fingertips or you would not have made the slur like a COWARD hoping mud sticks!!

    Not Fooled By property Spruikers Hype
    January 30, 2011
  258. Comment by Not Fooled By property Spruikers Hype on 30 January 2011:

    Why cant the housing market in Perth stand on its own two feet without artificial boosts to support it?

    It appears that it can not, and we all know government incentives do not help, despite what “some feel” about it.

    I find it interesting Biker that you talk of everything being good, good property in good locations, good tenants with good jobs however over the last couple of months you have made large payments to higher leveraged positions on some of your property, despite having considerable “offsets”, deductable expenses and excellent fortnightly income and everything else all well and good (according to you) They are the actions of someone that has some concern over their property portfolio and is moving to protect their position, not in itself a bad thing admitted, just seems a little strange when the same person is spouting that everything is fine.
    Akin to a CEO of a company going on the news telling shareholders and the public that the company is in a great position whilst selling out his shareholdings as quickly as possible……..

    Stillgotshoeson
    January 30, 2011
  259. Comment by Biker Pete on 30 January 2011:

    If I was a FHB in the market for a home up to $450K, I’d be waiting to see if there’s a $20K grant in the offing, too.

    20k* Available for first home buyers in Victoria and FHB’s have virtually gone from the market compared to 12 months ago
    *$7000 from the federal government
    $13000 from the State Government for BUILDING a new dwelling

    Stillgotshoeson
    January 30, 2011
  260. @ Shoes ….. Ever see a drowning man trashing trying to grab on to something ?… anything? … straw will do!!

    NSW also have incentives worth over $30K & it is not helping …. nobody is buying Farmer Pete’s dream ….

    12 months he will have a huge pile of debt!

    Not Fooled By property Spruikers Hype
    January 30, 2011
  261. Comment by Not Fooled By property Spruikers Hype on 30 January 2011:

    @ Shoes ….. Ever see a drowning man trashing trying to grab on to something ?… anything? … straw will do!!

    NSW also have incentives worth over $30K & it is not helping …. nobody is buying Farmer Pete’s dream ….

    12 months he will have a huge pile of debt!

    If Biker is truthful, then his lack of high leverage will see him through the coming property correction, 2011, 2012 or 2015 that it may end up being, I personally think it has commenced already, especially for Melbourne and Sydney and Brisbane. WA may take a little longer but will suffer the same fate.

    It will be interesting to see however if in fact the property he has, which he states “is always for sale” gets pulled off market as he has also stated he would do in a declining market or he actually sells off when he sees a definitive fall coming to protect his “wealth”
    circa $5 million property portfolio losing “Keens 40%” figure is a $2 million drop, I don’t think Biker would take that too well.
    *figures here are representive only.. feel free to use your own…

    When (not if) China hits a go slow, WA property investors really need to hope that India can pick up the slack, if not there will be a lot of empty properties.
    No tenants and no buyers… would definitely not want to be leveraged when that occurs.

    Biker may not be, plenty of mum and dad investors on average or slightly above average income are… far, far more than the likes of Biker.

    Stillgotshoeson
    January 30, 2011
  262. Biker:
    If I was a FHB in the market for a home up to $450K, I’d be waiting to see if there’s a $20K grant in the offing, too.

    Why so the price would be inflated to over 500K?

  263. ooops better get onto my mistake..

    *figures here are representive only.. feel free to use your own…

    should have typed

    *figures here are representative only.. feel free to use your own…

    We all know how Biker likes to jump on comments with grammar/spelling errors to highlight his superior intellect to all…
    We all let them slide, still knowing what the writers intent is..
    Biker just likes to point the errors out.. He does seem however, to let errors in grammar/spelling from Dan Denning or Bill Bonner slide though… just sayin.

    Stillgotshoeson
    January 30, 2011
  264. I fnid wehn Biker si loosnig the argunemt is when he uses grammar and spelling mistakes when he cant actually answer the questions front on.

  265. @ Shoes & Steve … dont forget using BIG BOY words to try to look like he has a educmakation!!

    Coward Pete …. Still waiting for you to post 3 lies I have made?

    Not Fooled By property Spruikers Hype
    January 30, 2011
  266. Liar N Fool of ‘Mardarie’: “Still waiting for you to post 3 lies I have made?”

    Jeez, where do I start?

    First, your claim that I’ve posted “BUY, BUY, BUY”. Where does that lie come from, Fool? Second, your claim that about repossession of one of our homes. We have never had a home repossessed. Third lie? Your claim that Perth prices were falling as they were actually rising. I responded:
    “ABS data released this month shows Perth houses rose 9.4% over the past 12 months. (October to October) Direct quote from The West, p. 20, 27-28 November 2010. Let’s hear some response from The Snakeoil Salesman, N Fool.” You then grudgingly acknowledged your lie.

    Other furphies. Hard to know where to begin: Your contentions that new graduates won’t get pay rises; that WA’s working mothers will all get pregnantly incapacitated simultaneously; that interest rates are about to blow-through-the-roof; that today’s interest rates equal 22%; that the costs of development and home building will fall; that we’ll experience deflation; that WA’s economy will fail, indeed China will fall. There’s no end to your verbal defecation, Punter Fool of Mindarie!~ :D

  267. Let’s continue, shall we?

    Your lie that you were at an auction, in Perth. You’d forgotten you’d previously stated you were elsewhere. Challenged by another blogger, you admitted online you’d _lied._ Your lie that I work in a bank. Your lie that I live in ‘Wannerroo’. Your claim that “”Doctors wont be able to afford to live in Perth then what” (Here N Fool forgets he’s supposed to be talking the market down. He talks it up instead!)

    Best of all are your feeble, illiterate attempts to post in a number of aliases longer than my arm. My favourites? Have to be Tony and Joel!:
    “…it will be funny if a tenant buys a cheap house off there landlord
    Tony January 13, 2011; and “I got my property off a struggling developer” Aaron, January 25th, 2011. Jeez, mate… no wonder he was struggling. :D
    You bought it FROM them, DH. (Not that you bought anything. The usual defecation… .)

  268. Off topic..

    @Lachlan I bought more Focus on Friday. With more drilling at the what could be well named “treasure Island” site in the first quarter and my expectations of the gold price to recover lost ground the expected jump to 12 cents could be but months away..
    One of my research tools/sources gives them an intrinsic value of 33 cents already.

    Stillgotshoeson
    January 30, 2011
  269. Coward Pete …. Wrong …. Tony / Joe / Aron are not me

    Spineless Twit unable to substantiate a single thing casting assertions against people based on the $hit betweent his ears.

    Your asseration that I am Punter is a Lie & Humorous at the same time as you are unable to grasp the simplest of things.

    At one stage you thought thought I was Dullsville.

    Starting to get a complexion old timer … the whole world is against you

    World Traveller / Developer / Hobby Farmer / Internet Troll drowning in Debt casting aspersions he is unable to prove.

    One of lifes true Oxygen Thiefs commonly found down at the shallow end of the Gene Pool!!!

    Not Fooled By Property Spruikers Hype
    January 30, 2011
  270. Coward Pete….

    you say today’s interest rates equal 22% is a Lie???

    Really want me to prove you wrong ?

    What I said was that todays interest rate of 7% is = to a 22% rate in 1990 when interest rates were 17%

    This is a VERIFIABLE F*A*C*T* & until you can prove different this will stand as an example of your lack of understanding the fundamentals!!!

    7% interest rate today is equal to a 22% rate in 1990 ….. Dont agree? … Put your number to it & watch me wipe the floor with you.

    Proof positive you are incapable of getting anything right….. Tee Hee Hee

    Not Fooled By Property Spruikers Hype
    January 30, 2011
  271. Your assertion that if you repeat something long enough it will become ‘fact’ shows you for the charlatan you are, N Fool Punter.

    “…the whole world is against you…” (?) Repeat it over and over again, if you think it will come true… . ;) May you find comfort in that hope.

    “One of lifes true Oxygen ‘Thiefs’ commonly found down at the shallow end of the Gene Pool!!!” A very tired, illiterate comeback which you’ve tried before here… and completely outworn on PerthNow.

    This business of repeating something until it becomes ‘fact’ is seeping into your brain like ink into chalk. _You’re_ starting to believe your own lies. When you’re experiencing problems with reality, you’re a very, very poor authority on realty. ;)

  272. Interesting Article.

    http:

    //www.businessspectator
    .com.au/bs.nsf/Article/house-prices-bubble-falling-slump-pd20110128-DHRZA?OpenDocument&src=kgb

    You will have to copy/paste link and relink it…

    Stillgotshoeson
    January 30, 2011
  273. Come on coward Pete you said:

    7% interest rate today is equal to a 22% rate in 1990 ….. Was a Lie!!!

    I am challenging you to show how it is …. You are the one who said this is one of my lie? … I did not put words in your mouth …

    Now man up & concede you got this wrong & we can move on to discrediting your next assertion & then the next & then the next …..

    Be a man stand up & take your punishment or back down like a whimp… either way I win …. Tee Hee Hee

    Dont agree? … Put your number to it & watch me wipe the floor with you.

    Not Fooled By property Spruikers Hype
    January 30, 2011
  274. Spineless? Coward?

    What are you going to do, bleed on me? :D

    “Go away and don’t reply to anything I post from here on in and I promise to leave you alone as well.” October 14, 2009….

    and:

    “Hey Travs forget about me it is not about me …. why make me the centre of your focus …” December 04, 2010.

    Found another reference to your ‘reality’ issues here:
    http://www.youtube.com/watch?v=2eMkth8FWno

  275. @ Shoes

    I read that article & it was a good one the link you provided need login / password ..

    This link gets around this & you can view the whole article without the need to login…

    http://www.businessspectator.com.au/bs.nsf/Article/house-prices-bubble-falling-slump-pd20110128-DHRZA?OpenDocument

    Have a read Coward Pete just might open your eyes ….

    Not Fooled By property Spruikers Hype
    January 30, 2011
  276. Thnx for correct link NF..
    I thought I had posted the open link, my mistake..

    Stillgotshoeson
    January 30, 2011
  277. Read it, aNOTher Fool. An article in the AFR, 24/01/2011, p. 37, refuted most of those (later) arguments, showing that fundamental differences between US and Oz property include:

    “The absence in Australia of lax credit criteria…” “…the lower portion of development loans…” and “…the full recourse nature of Australian mortgages…”; citing Fitch’s most influential factor as “low loan-to-value ratios on the banks’ mortgage books…”

    It also noted that because interest on the family home is not tax deductible “Australian borrowers tend to pay down their mortgages…”

    Comparisons with the US are foolish. Their unemployment is over twice ours… and three times the predicted rate for WA, 2011-2012. References to Keen’s 40% property crash are just silly; although I must admit Keen’s graphs were every bit as impressive as those cited in the link.

    Now, c’mon, aNOTherFool, you made the claim: “7% interest rate today is equal to a 22% rate in 1990.” Time to prove it. You’ll recall that many PerthNow readers laughed at this lie*. Wipe the haemoglobin off your stumps and you can ‘wipe the floor’ with me. :D

    * Great screenshot, BTW… . ;)

  278. Coward Pete

    You were the one who said my 7% = 22% in 1990 was a lie …..

    so front up show your reasons for your assertions ….

    Nobody on Perth Now challenged the accuracy … not even your little buddy Dogman questioned a single dollar or percentage point.

    Sit there quiet like a coward in the corner yelling comments & when challenged has nothing to say…. pfft

    Come on fool Y*O*U said it was a lie so show on what basis you make a unsubstantiated cowardly statement

    Keep wiggling like a worm on a hook … you said it you own it now man up!!

    Not Fooled By property Spruikers Hype
    January 30, 2011
  279. I figured you only kept copies of your _own comments,_ to copy, paste, post and repost, ad infinitum, aNOTher Fool.

    You walked straight into it, eyes-wide-open.

    You also confirmed saying it: “What I said was that todays interest rate of 7% is = to a 22% rate in 1990 when interest rates were 17%”

    Prove it.

    You _know_ what will happen:

    1.) You’ll exercise your best Year Ten mathematics, attempting to prove it;

    2.) I’ll cite a string of factors you neglected to include. Some of these are mine, many are Bill’s. Your lack of economic nous is understandable, given you left school at the age you did.

    3.) You’ll bleat “Go away… forget about me…” etc.

    C’mon, genius…. Show us how: “…todays interest rate of 7% is = to a 22% rate in 1990 when interest rates were 17%”… . PROVE IT.

    Get ready for the most confused, blinkered logic you’ve ever witnessed, folks… . ;)

  280. C’mon, fellas… this is your hero, the dark knight. He’s legless and (h)armless, but his decapitated cranium, with chattering dentures, still
    has some bite!~ Back him up! Bring tourniquets, saline drips, anything.

    He hasn’t started addressing _ONE_ of fifteen lies I listed… and he’s screaming “Come back and fight, spineless coward!!!~”

    No substance. This is the same Fool, who responding to my assertion that West Aussies would quickly see through his scare campaign, boasted, 6th Dec 2010: “Wont work here ? … Oh yes it will.” :D

  281. Comment by Biker Pete on 30 January 2011:

    Liar N Fool of ‘Mardarie’: “Still waiting for you to post 3 lies I have made?”

    Jeez, where do I start?

    Other furphies. Hard to know where to begin: Your contentions that new graduates won’t get pay rises; that WA’s working mothers will all get pregnantly incapacitated simultaneously; that interest rates are about to blow-through-the-roof; that today’s interest rates equal 22%; that the costs of development and home building will fall; that we’ll experience deflation; that WA’s economy will fail, indeed China will fall. There’s no end to your verbal defecation, Punter Fool of Mindarie!~ :D

    Well these, technically are not lies, they are opinions… they may or may not come about and therefore may be correct or incorrect opinions but they are certainly not lies per se

    Stillgotshoeson
    January 30, 2011
  282. DRA and DR(US) continually present data, using terms like “Let’s consider…” and “We’d expect…” to _query_ the _likelihood_ this means X or Y. Check Dan’s item above, for examples.

    Utterly different from the continual fabrications aNOTher Fool presents as ‘fact’. Frankly, I think the very example N Fool has himself selected to debate demonstrates this well. He gives us a mathematical equation… as fact; believing that if he posts this a sufficient number of times it will _become_ fact. Those who detailed his errors are termed ‘OXYGEN thief(s)’,
    ‘Pinheads’ and a range of others niceties. Woe betide if the object of his vitriol is out sanding pergola beams, or repairing a fence when abused. He’s ‘spineless’, a ‘coward’, etc.

    You see, it’s the key part of his strategy. Goal: Create and maintain a fear campaign. Method: Repeat key lies again and again… Sometimes twenty out of 29 posts are this Fool’s! Where others, including myself, acknowledge data NOT at all helpful to our position, this hopeless troll believes he will single-handedly pull down Perth’s property market.
    He _does_ need your help, Shoes.

  283. Coward Pete …. Pay attention I will type slowly so you keep up….

    In Jan 1990 interest rates hit a record high of 17%

    So how would this compare in todays housing market?…

    The 1990 Median house price was $100K with a 20% deposit & a loan of $80K payments @17% interest over 30 yrs would be $1140 pm or 32% of wages with average family wage of $42K pa…

    So in 1990 @ 17% the worst interest rates in Aust history payments only ever got to 32% of average family income…

    Fast Fwd to 2010 Median price reached $500K less 20% deposit & a loan of $400K payments @ 7% interest over 30 years are $2661 pm or 43% of wages with average family wage of $75K…

    So to get to 43% of wages going to house payments the payment would need to rises to over $1505 per month … this works out to a interest rate of 22.5%

    In 2008 interest rates were 9.5% this would work out to payments of $3365 or 54% of current wages in 2008 …. or $1890 in 1990 this is equal to a 28.5% rate in 1990

    Now historically for the last 30 years interest rates have averaged 10.11% this would works out to payments of $3545 pm or 57% of wages going to mortgage payments ….or $1995 pm in 1990 this is equal to 30% rate in 1990….

    So summing up current housing mortgage payments @ 7% is still worse than when rates were at 17% but just imagine what will happen when rates rise?

    Not Fooled By property Spruikers Hype
    January 30, 2011
  284. The first fact you ignore is that twenty years on from 1990, houses are _bigger_ and better than those built twenty years ago, aNOTher Fool. Most we build have four bedrooms, home cinema, two (or even three) bathrooms, and double garages (not carports). They come standard with solar HWS; reflective tint on windows; dishwashers; and air-conditioning. And these are _rentals_. Many in the area in which we build have built-in outdoor entertainment areas, frequently pools. People put housing high on their financial agenda. ;)

    Your presumption that wages stay static over time ignores the major growth in any individual’s income over time. You conveniently forget the wage pressure currently experienced in a state desperately seeking workers;
    you ignore the reduction in real repayment of debt over time, due to inflation… up to 40% less in a decade. You ignore the CGT-free sale of the family home, allowing families to more easily step-up into more desirable homes and locations.

    So summing up, your numbers are mumbo-jumbo… meaningless…worthless.

  285. Comment by Biker Pete on 30 January 2011:

    So summing up, your numbers are mumbo-jumbo… meaningless…worthless.

    But yet consumer spending (nationally) is in decline..but credit card use is up (implications are households are now juggling household budget on Credit Cards)
    Home construction is down considerably..FHB’s have all but disappeared, VIC and NSW have FHBG running but yet FHB are thin on the ground.. WA is Booming yet WA is thinking/planning/expected to be implementing a new FHBG.. (one has to ask why it’s needed if things are so good?)

    The reality is that household budgets have been broken, there is no spare capacity to pay more.. rising utility costs, rising food costs, rising fuel costs, rising rents, rising interest rates.. enough mortgage holders, be they investors or owner occupied loans are at their financial limits, they will not even cope with 9% Interest rates.. probably enough to influence the market.(down).. cetainly at 10%

    Stillgotshoeson
    January 30, 2011
  286. Found the link from PerthNow where Biker claims to be a builder and/or developer yet Not Fooled?

  287. Yes, thanks for those perceptions, Shoes. I recall your stated opinion that excessive use of credit cards, to purchase those ‘extras’, the flash car, the wall-size flatscreen, etc., would lead to Australia-wide loss of homes. Those poor FHBs can’t win, can they? Damned if they do… damned if they don’t. ;)

    Shoes: “WA is Booming yet WA is thinking/planning/expected to be implementing a new FHBG.. (one has to ask why it’s needed if things are so good?)” Ah well, that’s politics, you see. The other states do it, we follow suit. Seriously, WA faces a major shortage of accommodation, now.
    The Punter Fool will tell you it isn’t so. We know it is. The queues have resumed. The rents are rising. We have to decline two thirds of applicants. The state _has_ to do _something_ urgently.

    So why sell?

    I recall you stating once that you always sold when you achieved the price you wanted. You confirmed our view (actually my father’s) that you should ‘set a sell, when you set a buy’. You put the view that one should not feel disappointed if the price then rose beyond selling price. We agree.
    Remember too, that we’re ageing. We can afford to unload properties which are worth far, far more than they’re returning us in rent. Hence my previous comment re CGT being our primary issue… .

    You implement ‘stop losses’. We simply withdraw properties from sale during plateaus. Then we _buy_ during these flat periods. I’d propose that, in those two strategies, you probably lose… and we do not.
    Just sayin’. ;)

    We won’t be at all disappointed should interest rates reach 10%.
    Your confusion about our assets is based on property alone.
    From Day #1, you know I’ve recommended diversification. :D

  288. Comment by Biker Pete on 30 January 2011:

    We won’t be at all disappointed should interest rates reach 10%.
    Again you take the “I’m alright stance” The masses are not in “Biker Pete”s position. They won’t be

    Your confusion about our assets is based on property alone.
    From Day #1, you know I’ve recommended diversification

    There is no confusion, The current discussion is on how property (not investments) will/will not suffer in the current economic conditions..
    You well know that I to recommend a diverse investment portfolio, rebalanced to suit investment needs and opportunities as they arise.

    For you and yours, property has done well for you over 30 years…
    You have stated in the past that you have dabbled in shares (some good trades and getting out on readings of DRA saved you losses) but that property has performed best for you
    For me Shares have performed better than the property market for the now 7 years I have been a trader.
    No one will ever convince me that property is a better investment than share trading…my personal experience proves to me otherwise. I still ackowledge property has a place in an ivestment portfolio.. I agree with your method of having a property portfolio through an SMSF, to do it any other way is foolish and a waste of potentially tens of thousands or even hundreds of thousands of dollars
    The biggest advantage investment property has over Shares is (in most circumstances) a steady and secure income stream. Capital Gain however is, as many are now finding out in Tasmania (tasmanianrealestatetrouble blog keeps us informed on them) Ned seeing softening in Brisbane and SE QLD, I’m seeing it in Melbourne.

    As for our ages, If I was your age I would rather have the income of 5 rental properties than be chasing gains on share trades and watching the economies and markets for signs of where and where not to put my money.. The security of 5 properties bringing 20k each is a far better proposition.

    If the suns align for me I will acheive that position without ever having borrowed a $1.. so far so good

    I have enough in my super to buy 2 properties outright now and my non super account has almost enough to buy one.. Personally think I have done well, for an illiterate pig farmer to tagger of unexploded ordinance and grease monkey to going to uni as a mature age student and getting a degree in Mechanical Engineering (Fluid Power Control and Design) Getting divorced and losing mostly everything to being well and truly back on my feet… we are bred tough where I come from.
    I think I will stick with what I know best and do well with.. I will always watch property, as a wise property investor sould also watch markets.. If a property grabs my attention and is perceived by me to be value adding I will buy it.. Still do not see the need for a property to be bought to live in (yet) theat day will come I am sure.

    Stillgotshoeson
    January 30, 2011
  289. “I agree with your method of having a property portfolio through an SMSF” – Biker doesn’t have a SMSF Shoes. Not unless he’s very recently set one up?

  290. He has made many references to “his” SMSF and he recommends them for the CGT liability reductions they bring…..

    Stillgotshoeson
    January 30, 2011
  291. Shoes: “Again you take the “I’m alright stance” The masses are not in “Biker Pete”s position.”
    No, merely my (too) subtle inference that 10% won’t happen soon…

    Shoes: “There is no confusion”
    You punted a figure. On property _alone_ you are _way_ off… .

    Shoes: “You have stated in the past that you have dabbled in shares…”
    What I actually stated was that between 2002 – 2007, I made ‘pocket money’ from shares.
    Any gains were erased by just one bad call!~ I don’t mind admitting this.
    Think both my sons learned a great deal from that! :D

    Shoes: “I agree with your method of having a property portfolio through an SMSF…”
    ??? We don’t. We did the Math. It didn’t work for us. I accept that it a.) works for others;
    b.) we already own far too much to use a SMSF.

    Shoes: “If I was your age I would rather have the income of 5 rental properties than be chasing gains on share trades and watching the economies and markets for signs of where and where not to put my money…”
    Eventually we may end up owning just five. There _are_ a few restrictions to lifestyle (including travel) holding a lot of rentals. Fortunately the new Mac Air should lighten the burden.

    Shoes: “I think I will stick with what I know best and do well with..”
    Yes, I agree you’ve done very well… and should continue to do so in the future.
    Your strategies seem sound.

  292. “He has made many references to “his” SMSF ”

    Not once, Shoes. Ned is right. Advantages of SMSFs were included in our list of Key Questions.
    Never happened… .

  293. “…the CGT liability reductions they bring…..” OK, I see your reasoning, here.

    We are allowed $150K each (ie $300K) per year to roll into our Super funds. That’s $900K over a three-year period. We don’t need a SMSF to do that.

    Based on those figures, it makes good sense to sell _at least_ three properties before July 2013.

    Our other strategy has been to salary sacrifice 70 – 85% of income to Super, while pulling $50K in TTRs, tax-free, annually, on top of all other income.

    CGT has therefore been very, very much reduced through Salary Sacrifice. Recent limits on Super contributions has slowed us a little… . :D

  294. Just checked – Yep, it was Biker you were saying has a SMSF. Had to check – Wasn’t sure – As reading Not Fooled’s stuff had left me feeling like I’d been hit repeatedly around the head by a blunt object. I’m half tempted to go and buy property – On the assumption that nobody like him could EVER be right about anything! ;)

    Quite a few decent articles here by Matusik:

    http://www.couriermail.com.au/news/opinion/columnists/michael-matusik

  295. Am positive you made mention of it in a discussion about how expensive Financial Advisors were and that you had nade the decision a while ago to manage it yourselves

    Stillgotshoeson
    January 30, 2011
  296. Coward Pete …. Still not able to summon the courage to say you were wrong??

    Lets take your feeble response apart :

    The first fact you ignore is that twenty years on from 1990, houses are _bigger_ and better than those built twenty years ago, aNOTher Fool.

    **** Wrong I have a friend who recently sold 2 DHA authority houses bought in 1996 did nothing to them …THe DHA repainted them carpets etc on handback not a single SQ Inch added yet the price of the property went up …. But your argument falls in a heap when you look at a block of land nothing can be done to make it bigger etc yet the price went up …. The house we currently live in bought 2002 for around $250K nothing done to it yet it is valued at over $750K today so BZZZZZZ WRONG ******

    (NED PINHEAD PAY ATTENTION COWARD PETE IS SAYING HERE HE DEVELOPS PROPERTY) ***** Most we build have four bedrooms, home cinema, two (or even three) bathrooms, and double garages (not carports). They come standard with solar HWS; reflective tint on windows; dishwashers; and air-conditioning. And these are _rentals_. Many in the area in which we build have built-in outdoor entertainment areas, frequently pools. People put housing high on their financial agenda. ;)***** Getting it now Dopey Ned ?

    Your presumption that wages stay static over time ignores the major growth in any individual’s income over time. You conveniently forget the wage pressure currently experienced in a state desperately seeking workers;

    *******Are you really that retarded? …. In my example I show the fact that wages over this period wages went up 75% from $42K – $75K …How do you come to the conclusion the wage growth is not allowed for??? 1990 wage & 2010 Wage is ABS Household Income Data & takes into account wage growth by promotion to better jobs etc {You sound like Bill the Dill here? He could not get his head around this} From 2000 – 2010 WA wages went up by 38% & the CPI went up by 36.6% so WA had real wage Growth of 1.4% … This was in the middle of a mining BOOM so any future mining boom will not have any different outcome…… BZZZZZ … WRONG *******

    you ignore the reduction in real repayment of debt over time, due to inflation… up to 40% less in a decade. You ignore the CGT-free sale of the family home, allowing families to more easily step-up into more desirable homes and locations.
    ***** IRRELEVANT the example was a person buying in 1990 with a 20% deposit @ 17% Vs a Person buying in 2010 with a 20% deposit @ 7% *****

    Like the coward you are you try & hide from the fact that you said my claim that a 7% rate today was equal to a 22% rate in 1990 was a L*I*E*.

    Now you try to squirm away by not addressing the fact the you were wrong to say I was L*Y*I*N*G ….

    Man up old timer …

    I have laid out my case & you are not able to refute a single percentage point / percentage of wage to service mortgage /

    You are wrong but wont admit it …. Floor wiped clear with Coward Sam …

    Not Fooled By property Spruikers Hype
    January 30, 2011
  297. Response blocked. Five attempts.
    Port Phillip Publishing Pty Ltd is protecting someone… Why?
    Coward Sam?!~ ;)

  298. Let’s try again, in small bites:

    “The house we currently live in bought 2002 for around $250K nothing done to it yet it is valued at over $750K today”

    Uhh, let’s see. Your property TREBLED in value in an eight-year period…
    yet you scoff at bloggers who state that property doubles every seven years?

  299. Comment by Biker Pete on 28 January 2011:

    “… He has this need to ‘label’. Our hobby is realty, so we’re ‘developers’ or ‘builders’ …”

    Comment by Not Fooled By property Spruikers Hype on 30 January 2011:

    “(NED PINHEAD PAY ATTENTION COWARD PETE IS SAYING HERE HE DEVELOPS PROPERTY) ***** Most we build have four bedrooms, home cinema, two (or even three) bathrooms, and double garages (not carports). They come standard with solar HWS; reflective tint on windows; dishwashers; and air-conditioning. And these are _rentals_. Many in the area in which we build have built-in outdoor entertainment areas, frequently pools. People put housing high on their financial agenda. ;) ***** Getting it now Dopey Ned ?”

    Yep, I’ve got it Not Fooled – You aren’t capable of understanding that someone who says “I built a house” is not necessarily a builder. Even though he specifically describes realty as a hobby. With the inability to understand such extremely basic things being your problem rather than mine obviously.

    Ferk, you ARE dumber than doggy do!!! :D

  300. “COWARD PETE IS SAYING HERE HE DEVELOPS PROPERTY”

    Nope. It’s one of our more lucrative hobbies. We’re not builders, nor developers. Nor do our annual tax returns deem us either occupation.
    Sorry we don’t fit into the little box you’d like to put us in, aNOTher Fool.

    Who is Sam? Another uncooperative unbeliever you’re abusing on PerthNow?

  301. OK had a squiz back, way back to October last years entrants, and I am mistaken about Biker and an SMSF.. Can understand why someone over 60 or even 55 does not have one but it is something you should have seriously looked into Biker..From those earlier threads you were, but the missus was none too keen on them.

    Stillgotshoeson
    January 31, 2011
  302. “In my example I show the fact that wages over this period wages went up 75% from $42K – $75K …How do you come to the conclusion the wage growth is not allowed for???”

    Greater participation of women in the workforce, for a start! Higher wages for women since 1990. Families having children much, much later.

    Your omission of such key socio-economic factors as an increase in double incomes and assets indicates not only retardation, but lack of knowledge of the Australian property market, Fool.

  303. Shoes: “From those earlier threads you were, but the missus was none too keen on them.”

    Best FA I’ve ever met, Shoes. ;)

  304. Off to bed, Ned. The Fool will, no doubt, continue to scream abuse for the next few hours. Let him go hoarse yelling. This is one very unhappy punter.

    Tempted to list another fifteen lies, tomorrow; like his claim I’ve recently sold a _house_! Where does he get this stuff? If he keeps repeating it, maybe someone will mail us a cheque!~ ;)

  305. “Am positive you made mention of it in a discussion about how expensive Financial Advisors were and that you had nade the decision a while ago to manage it yourselves”

    I’ve got a SMSF Shoes. Biker and I have discussed the pros and cons of them in the past. From the perspective of him being interested in knowing more about them. But not having one.

  306. “Off to bed, Ned” – Yep, cheers Biker. Cheers Shoes.
    Try to come up with something that isn’t quite so hard on rational people’s heads tomorrow Not Fooled … :D

  307. Coward Pete …. You say :

    Greater participation of women in the workforce, for a start! Higher wages for women since 1990. Families having children much, much later.
    Your omission of such key socio-economic factors as an increase in double incomes and assets indicates not only retardation, but lack of knowledge of the Australian property market, Fool.

    The wages I gave for 1990 & 2010 is from the ABS … It is Household income measured for a W*H*O*L*E* household in 1990 & then again in 2010 they measured household income & this measure included ….everything you cling to so desperately … 1} Greater participation of women in the workforce, for a start!…. 2} Higher wages for women since 1990. 3} Families having children much, much later…….

    Your omission of such key socio-economic factors as an increase in double incomes ….. I O*M*I*T* nothing as I dont measure it it is the ABS & the 2 wages I use is the same measure ….

    You make out that I use a imperial measure in 1990 & then the country changes to metrics & I am still quoting imperial measures …. I am not

    The M*E*A*S*U*R*E* was Household Income in 1990 & 2010 you are wrong!!!

    Keep going clown you are showing your complete lack of understanding of economics …..

    Well dipstick …. do you still think my statement is a lie? ….
    that a 7% interest rate today is equal to a 22% rate in 1990

    Now I know why you always dodged discussing a topic on Perth Now site … when you drill down you have no understanding of the basics ?

    Village Idiots would be embarrassed in your company!

    Not Fooled By property Spruikers Hype
    January 31, 2011
  308. Coward Pete …. Pay attention I will type slowly so you keep up….
    Here it is again …. You said I was lying … now go over this again & point out which part is a Lie?

    You are trying to twist & wiggle but you are unable to substantiate the slurs you cast … can you?

    In Jan 1990 interest rates hit a record high of 17%

    So how would this compare in todays housing market?…

    The 1990 Median house price was $100K with a 20% deposit & a loan of $80K payments @17% interest over 30 yrs would be $1140 pm or 32% of wages with average family wage of $42K pa…

    So in 1990 @ 17% the worst interest rates in Aust history payments only ever got to 32% of average family income…

    Fast Fwd to 2010 Median price reached $500K less 20% deposit & a loan of $400K payments @ 7% interest over 30 years are $2661 pm or 43% of wages with average family wage of $75K…

    So to get to 43% of wages going to house payments in 1990 the payments would need to rises to over $1505 per month … this works out to a interest rate of 22.5%

    In 2008 interest rates were 9.5% this would work out to payments of $3365 or 54% of current wages in 2008 …. or if 54% of wages in 1990 went to servicing a mortgage the payment would be $1890 in 1990 & this is equal to a 28.5% interest rate in 1990

    Now historically for the last 30 years interest rates have averaged 10.11% this would works out to payments of $3545 pm or 57% of wages going to mortgage payments ….or if 57% of wages went to servicing a mortgage in 1990 the payment would be $1995 pm in 1990 & this is equal to 30% rate in 1990….

    So summing up current housing mortgage payments @ 7% is still worse than when rates were at 17% but just imagine what will happen when rates rise?

    I know you still struggle to grasp this but look at it this way ….

    A .25% rise in interest rates today is the same as a .75% rise in 1990

    A 1.0% rise in interest rates today is the same as a 3.0% rise in 1990

    Now try & imagine in 1990 interest rates are @ 22% (what the rate is in comparative terms to today’s 7%)the RBA announce a interest rate rise on Melbourne cup day & the banks match it & this means your rates have just jumped by 1.6% to nearly 24%

    No matter what shade of Lipstick you try to put on this Pig Cowarde Pete it is still a PIG!!

    Not Fooled By property Spruikers Hype
    January 31, 2011
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