Australian Housing More Unaffordable in 2010


Whoa nelly!

Let’s clear something up before we get any further into today’s reckoning. Yesterday’s letter closed with this cryptic comment, “But what’s bad for shares might, just might, be good for housing.” We didn’t elaborate. And some readers wrote in asking if we’ve become property bulls all of a sudden. Nope.

Australia is a two-speed asset market. Aussies speculate on houses AND shares. From what we’ve seen in the last four years, the investing public is convinced that if you can’t make money in the share market, you just turn to the property market and everything will be fine. This isn’t true. But it IS the sort of thing that could support house prices in 2010. And they’re going to need it.

2009 was a great year for existing homeowners. Nationally, prices were up 11.3% through the first eleven months of the year. Sydney prices were up 11.6% and Melbourne prices soared nearly 17%. That’s going to be tough to replicate, especially when interest rates are set to rise and the first home buyer’s grant has expired at its elevated levels.

But all that skirts the issue. Housing affordability didn’t improve one jot or one tittle last year. Australian housing became more unaffordable than ever. Yes, yes, the Reserve Bank says just the opposite. But it says so based on the presumption that access to cheap credit is what makes buying a home affordable.

We use a more conventional measure: the average home price. It’s rising a lot faster than inflation-adjusted wages. Unless you’re willing to saddle yourself with massive debt (encouraged by the government) you don’t gain any exposure to rising prices (supported by the government). In our view, it’s a financial risk well worth avoiding.

Not that shares are inherently safer. Housing price adjustments happen over years. Share market adjustments happen a lot faster. Right now the Aussie indexes are trying to crack 5,000. We poked our head in the trading room yesterday to see what the trading guys had to say. They are market neutral and have trades on both sides of the ledger at the moment.

A couple of interesting things happened yesterday, though. First, February gold futures went up by over $22 and two percent to close at $1,118.10. Gold closed up $218 in 2009. It was a 24.8% gain for the year. In nominal terms, it was a smaller rise than the $286 gain in 1979 and in percentage terms it was smaller than the 31% rise in 2007.

But gold has closed higher nine straight years in a row. That made it a pretty good “trade of the decade.” Bill writes about it below. But his question, and the one we take up now, is whether buying gold and selling stocks is the best trade of the NEXT ten years.

Well first, we wouldn’t count gold out yet. In fact the whole precious metals complex had a stellar year. Silver finished 47% higher. Platinum was up 58.7%. And palladium was up a hearty 200%. Those are great numbers. And with stocks, you have even greater leverage to rising commodity prices. But obviously the question remains: are those numbers the sign of a top?

To be brief, no. Gold gained against all major global currencies over the last ten years, not just the U.S. dollar. The evidence is in the chart below from our friend Adrian Ash at . Commodity currencies, high-saving countries, managed floats, large debt-to-GDP ratios…none of it mattered. Real money beat paper money over the last ten years, hands down.

Gold vs. Major Currencies over last 10 years


Gold’s Decade Gain (%)

US Dollar






Chinese Yuan


UK Pound


Brazilian Real


South African Rand


Canadian Dollar


Indian Rupee


Mexican Peso


Russian Rouble


Australian Dollar


South Korean Won



Speaking of gold, the black kind-oil futures crossed $81 in New York futures trading. It’s hard to argue that energy prices are going higher if you think the global economy is contracting (or will contract). But because of its relative scarcity (and higher extraction and production costs) we like energy as one of the best investments of the next decade.

Oil’s one day gain was 2%. And with the northern winter settling in, you’ll have your usual mix of demand for fuel oil and heating oil and refineries struggling to get the mix right. At a 15-month high, it’s hard to blame this recent price surge on futures speculators. So what should investors do?

According to business analyts IBISWorld, have a look at fast growing industries. Oil and gas should be on your list. IBISWorld says world oil production will decline in 2010, according today’s Australian. “The firm’s general manager (Australia), Robert Bryant, said: ‘This[decline] will be more than offset by a rise in natural gas production, seeing the sector post 13.8 per cent growth in 2010 to $37.3bn, generating a 3.5 per cent increase in employment.'”

“‘In the coming year, Australia’s oil and gas industry will benefit from higher international prices, increased production volumes of natural gas from existing fields, and the development of new fields.'”

Ah yes. All apparently good news. Conventional and unconventional gas projects featured prominently in last year’s stock picks in the Aussie Small Cap Investigator and Digger and Drillers. They’ll probably feature again this year, but at the more speculative end of the market (not up at Woodside’s). But even energy stocks are exposed to a China bubble, about which more tomorrow. Until then!

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.


  1. In my opinion there’s only one way to really measure home affordability, and that’s by looking at the % of average monthly income you’d need to devote to the monthly repayments.

    This accounts for everything that matters in day to day life, from the cost of food/shelter to inflation and wage growth.

    Access to cheap credit really helps home INVESTORS rather than people looking to get out of a rental market and into something they plan to own and use.

    In fact, cheap credit can actually hurt home affordability, as counter-intuitive as it sounds, because people with a large asset to leverage against can use it to borrow more and more, funding extra houses. This breeds the “I have 3, you have none” situation.

    Unpopular Truth
    January 5, 2010
  2. mean net income after tax and basic expenses?

  3. I’m confused – Is Great Depression II over? With DRA absolutely and totally missing the turn last March. Or can we still look forward to dripping on bread for brekkie. And an Oz house price crash?

  4. Ned I would say on balance that DRA had a pretty bad year. Our paper money still pays the bills, the world did not enter into a Depression to end all Depressions and things are slowly stabilising. Gold was not a good buy in AUD terms and investors would have been better off in stocks. But as you know I have been saying this for a long time :) See:

    Greg Atkinson
    January 6, 2010
  5. Yes, your call was pretty good, Greg. We baled at 3800 even tho’ you predicted the run would be maintained! So did our eldest son. Even the global pessimists are listing Australia as one of the winners in the next decade. Our paper money has been worth more while we’ve been travelling, too… a bonus we hadn’t really expected… !

  6. Sadly Pete I did not quite time the market bottom with any great accuracy but heck, such is life. But I reckoned the world’s markets would stablise like they always isn’t the 1930’s any more.

    I am not entirely sure Oz will be a winner over the next decade. I sense we might be getting outflank by China. We also appear to be selling off our resource assets fairly cheaply. (e.g. Gorgon)

    Greg Atkinson
    January 6, 2010
  7. Greg, do you think the US will continue their multi-Billion stimuli forever? When they withdraw the stimulus, then we will know if the recession is truly ended. I suspect they will return to stagnant growth and stimulate again. However the real worry for Australia is when things begin to improve and all this quantative easing turns into inflation and thus leads to higher interest rates. As the banks need to fund externally the Reserver Bank may not be able to do that much to counteract this. Then I suspect Australia’s property market will experience the price correction experienced abroad and the resulting recession.

  8. Mark there are now far more middle class spenders in Asia than the U.S. This year spending on consumer electronics in Asia will be greater than the U.S and Europe combined. The fact is that the U.S can struggle for years but it is not going to keep nations like India, Indonesia, Vietnam and China back forever. The global centre of economic activity is moving to Asia.

    I don’t make this stuff up by the way: See:

    The problem with the western finance media is they are so biased towards western economies. They cannot see the woods for the tree so to speak.

    Greg Atkinson
    January 6, 2010
  9. I agree that we flog our resources too cheaply, Greg. On the question of inflation, it has always worked _very_ favourably for us, so I see it as no great threat to us personally. I recognise that this will be interpreted as a selfish view, but as my No. 1 Fan will confirm, I’m a greedy money-centred b*astard. Tough job, but someone hasta do it…! ;)

  10. ..and because there wont be any big Austrlian businesses to take on the Asians we should see more of them of coming in and buying up real assets like premium suburbs , mines , gas , oil. Well a few Australians would get lucky. My advise would also be to stop learning French and doing those Europe tours post college working as waiters and head off to Asia and see what works there. Its going to be a cognitive dissonance otherwise, not really knowing where you belong even in your own country!. We are already becoming butt of their Jokes

  11. The vast majority of personal views have a critical Achilles Heel which prevent them from forming a confident long term view of the likely direction of market dynamics that sit atop certain foundational realities.

    DR have cosistently pointed to the fundamental weaknesses which, thus far, have not been fixed. Indeed, the majority of G7 actions have been to further compound the problem. Not a true, moral leader in sight.

    As an investor, or indeed a humble worker looking to protect their family, the focus should always be on the foundations of the structure, not the day to day, month to month snapshots.

    When driving a car, you do not base your view on the normality of the moment, but on the dangers ahead.

    In regards to the housing market and private debt levels in Australia, there is much wrong, wierd, unusual, unprecedented, unsustainable and downright scarey. The truth is so politically unsavoury that you can GUARANTEE the standard news outlets are 90% propaganda, artistically produced in full fear of what is likely to be around the corner.

    The key is to seeing the quicksand upon which the current status quo stands.

    Beware friends! There is no recovery, sincerity, honest productivity, until the rot and toxic sludge of the previous Manor collapses, is burnt, is paraded in the streets as evil, and community is rebuilt.

  12. Nirvan I was ranting on a year ago that we were becoming the “Thickheads” of Asia. Most people seem to think we either dig stuff up or farm. Ever had anyone marvel at Australia’s high tech sector when travelling overseas?

    People in Japan think I am either an English teacher or worse still…an American!!

    Greg Atkinson
    January 6, 2010
  13. Seriously mate, ya gotta bone up on ya strine – I’ve had some crook things happen ta me in me life – But, jeez … I’ve never bin mistook for a septic tank!

  14. Or an English teacher. :)

  15. The Australian property market bubble will correct as bubbles do.
    How when and by how much will be there for all to see when the time comes.

  16. Ned short of dressing and acting like Sir Les Patterson I am not sure what else I can do. Even when they pick where I am from the best I can hope for is a few compliments about our tasty beef. (our wine is not even that popular these days)

  17. “How when and by how much will be there for all to see when the time comes.”
    Now there’s some useful specifix!

    I’m mistaken for a Kiwi frequently in the Northern Hemisphere. Flightless without my bikes, I guess.

    Aussie wine is still popular in Canada, but it tends to be overpriced quaffing stuff. We do appear to be ‘dumping’ some good stuff in their LCBs, though. Saw a 2004 Grange for $425 yesterday…. cheaper than in Oz… and the freight isn’t cheap… . Interesting to see two big mining deals come unhinged in WA, Greg.

  18. Just wondering for anyone who thinks we’re the ‘thickheads’ of asia..

    When was the last time you heard of anyone going to China to study in a better University?

    Perhaps someone can tell me the last medical cure that came from China? In fact, any major technological breakthrough will do, not just medical. Nothing comes to mind for me..

    I’m pretty sure we’re ahead of the game. They can call us idiots, farmers and whatever if they wish, but like much of the politically acceptable western bashing, it’s mainly penis-envy. Oh and even if we do have a lot of farmers, it’s so we don’t have starvation in our country. Our % of subsistence farmers in our population is pretty small, so we have more people in thinking jobs than they do on a % of population basis. Another win for us.

    The day you start seeing people moving from Australia to China to have a better quality of life is when the situation has been reversed. I don’t see that happening any time soon.

    In short, we do a lot more, with a lot less, and a lot better, than they do, or will do in the near future.

    Unpopular Truth
    January 7, 2010
  19. Unpopular Truth we are talking about Asia not just China but just in case you have not noticed China have sent a man into space, developed a maritime ballistic missile that has the U.S Navy worried and have a company bidding to provide high tech telecoms gear for our NBN.

    Next look around your house and see how much consumer electronics you can find that was designed, developed or even glued together in Oz. Found anything yet?

    Get my point?

  20. Unpopular Truth, maybe you should look at how the Chinese find the cure for malaria.

  21. No argument that the build a lot of stuff, but as for design it, they usually pinch the design/tech/ideas from OS brains and then copy it. Story is the same whether it’s CPU’s, Missles, TV Remotes or Kettles.

    Get my point?

    As for focusing on China, I gave the region the benefit of the doubt. They’re probably on the cutting edge as far as this stuff goes in the Asian region. The other countries would only be worse than them, so I didn’t bring them up due to irrelevance. Japan being the obvious exception.

    You also ignored the point about study overseas and living in other countries by choice. I’d say the reason you don’t see consumer electronics produced in Australia is because there’s countries near us which are happy to use essentially slave labor to produce it far cheaper. We can’t compete with that and still honestly say we respect our citizens lifestyle. That’s a good thing by the way.

    Unpopular Truth
    January 7, 2010
  22. Unpopular Truth there are plenty of high tech, well paid workers in Asia especially in Taiwan, South Korea, Singapore and Japan. Asia is not one big sweat shop.

    Maybe China does copy a few things, but then again we copied from them also in the past. The Chinese have been inventing things for many, many centuries.

    As for studying overseas Asian students also travel to other Asian countries for that but the plus for Australia is students come to Oz for English (and many for a Visa) However we are only seen as a centre of academic excellence by ourselves. Elite students from Asia generally head to the U.S or Europe.

    By the way top designers are paid high salaries. Do you think Microsoft, Boeing, Cisco etc. got started in the U.S because workers there are paid low wages? Even the small Nordic countries have a bigger tech sector than Australia and they enjoy some of the highest standards of living in the world.

  23. Unpopular Truth, I have to second Greg on this. I work in the semiconductor industry in AU, and let me say it is almost completely gone. Lots of R&D takes place in various Asian countries, in addition to manufacturing, and often the salaries are higher than here. Further, having a high cost of living is no excuse for having a weak R&D capability, e.g: the Netherlands, with a smaller population than AU and also having large natural resources still has a respectable number of multi-national companies engaged in high tech.

    I don’t see many citations of groundbreaking research from Australian universities, however I see a *lot* of research being published by US and European universities authored by immigrants to those countries. From this I conclude that we are not #1 destination for the brightest young minds.

    So what are we good at then? Well back to the theme of this article, I notice that the real-estate industry is large and profitable enough to sustain 4-5 ‘corner shop’ estate agents in practically *every* suburb in the country. It seems industries with horribly inefficient business practices and economies of scale thrive here. Also, if you need any kind of tradesman to do work for you, it seems semi-skilled/unskilled labour is highly prized and within our capabilities in this country.

  24. I travelled for 12 months through asia on motorbike.

    I can tell you now I am not concerned about their aussie jokes. Whatever helps them forget where they work and live.

    I could of course tell some very accurate jokes about their culture and economic situation, but I imagine that would be considered racist!

  25. I read the joke and concurred fully – With the Aussie being mocked that is!

    Steer clear of the Dame Edna Everage look though Greg – I don’t know that my heart’s strong enough to stand the thought of the old girl being shanghaied down Okinawa way with her face painted white to serve tea (or somesuch?) to the troops.

    Ta Biker – re cins. I’ll ask you what you reckon about laundries one day – Not like the missus spends 1/4 of her life in them blue bagging the white linen anymore is it?

  26. Even the Canadians have the Blackberry and nVidia to speak off as indigenously developed high tech companies.

    The chinese just unveiled the fastest train ever. They didnt copy this stuff because nothing like this have ever been built before.

  27. I knew a bloke a few years back who wasn’t real well educated but real, real smart – He expressed the thought to me: “Whitey’s stuffed!” (Or a similar adverb ending in “ed” but starting with “f” just maybe?)
    But either way, he definitely had a point … Time for all the little white boys to grow up and start to get competitive if they want to stay boss cockies in the chook house … :)
    (As I said before I’m not an English teacher … I’m just guessing that “stuffed” is an adverb???)

  28. DR is big on things “reverting to their mean” – Like gold being what it was worth back in King Neb’s day and such like.
    So where exactly do such thoughts take us in a globalising world that they reckon is getting a bit short on for resources re stuff like per capita national purchasing price parity (aka standard of living?)
    Could this mean that whities ‘n chinks ‘n coons all pretty much end up “leveled out”??? … Perish the thought! Just keep workin’ on ya house plans Ned … :)

  29. “The Aussie handed back his drink and said: “Me too, I didn’t know we had a choice.”

    The interesting thing is that it’s likely an Aussie wrote the joke. We’ve always had the capacity to laugh at our own foibles. That may mean we don’t take ourselves seriously enough, or it may just mean the rest of the world needs to develop a sense of humour. ;)

  30. Pete, any competitive organism has as much sense of humour as is required by the circumstances of the competition. There is no doubt that “Australia Is The Lucky Country”. It is not mere coloquialism. Down under is an ecosphere that is more giving than most.

    In terms of resources, cultural historical apathy, and geographical optimity (hey thats 2 new words :), you really can’t beat this place.

    We can afford to make mistakes until the Chinese come home!

  31. Optimity: State of being the best. I’m inclined to think that’s gotta be WA or QLD(?!) Have to agree after six months in five countries this year, Oz still has my vote.

  32. Must be WA then because it’s definitely not QLD with Cap’n Bligh steering the ship – Dunno who’s running WA – Idi Amin maybe? Dunno, Don’t care – Wanna swap?

  33. QLD is definitely on our list, Ned. Got only as far as Noosa, back in ’71. Colin Barnett (Lib) is in charge in WA… but it’s an uneasy coalition with the Nats. Works for us as there’s money for ‘the regions’. ;)

  34. Here’s a cute one – This economist reckons it’s the Y Gens refusing to move out of home and let their poor old ma and pa downsize who are pushing house prices up. I do love opinions! :)

  35. Do you realise what this means, Ned?! Rising houses values are Steven’s fault! ;) I have a mate who is downsizing at present, in Perth. He and his missus are 55 and retiring… and the kids have all moved out (finally). He’ll pull about a mil out of the house, after fees. We figure a lot of others, either retired or close to retirement, will sell off their homes in this bracket, to move to houses in the $380K – $450K market… hence our own focus on building homes within that range.

    Laundries: We keep them simple and straightforward, Ned. All have rear access to wall clotheslines on pads linked by pathways (one pour). We get over $1K grant back if we plumb a simple water tank line into the laundry, so that’s standard now in every house. It also gives tenants inside access to filtered rainwater… .

  36. Yes, the irony of the argument wasn’t wasted on me either Biker! :)

    Downsizing is good – 300 m2 plus highset houses don’t have that much to recommend them to an older empty nester. IMO.
    That’s good commonsense about the laundries. I’ve even been considering just going with 2 front loading washing machines – One in the kitchen and one in the ensuite perhaps?
    Yes, I’ll have to remember to do the sustainability stuff – The local council provides a VERY comprehensive document on same.

    And it’s ’71 since you’ve been here – There’s been some changes since then – Rocky doesn’t brew Mac’s beer anymore; The Poms bought out Bundy Rum; And most of the good paying jobs on the night soil carts are gone – Think that covers all the important stuff? Let me know if/when you look like getting over this way! :)

  37. You would believe Pigs fly Pete

  38. Swine flu…

  39. Hey Steve, given all sorts of factors (many of which I’m NOT familiar with obviously), has it crossed your mind to use your cash to build a granny’s flat in ma and pa’s backyard? (FOR YOU – NOT THEM!)
    Don’t necessarily say it’ll be the “best” thing for you all long term? – It probably won’t be! But it just could fit with your risk profile/what you want re being close to work/etc???
    Give it a bit of thought before you spit the dummy. As noted recently, 76 m2 is the average home size in the UK – And Brissy will let me put 70 m2 in the backyard and call it a granny flat – Although I dunno about you lot in Sydney – You’ll need to check that for yourself of course.
    Aside from that, it might be the Macquarie Fields equivalent these days – It’s over a decade since I’ve spent any time in Sydney. Just a thought?

  40. The bigger and longer the boom the bigger and longer the bust.

  41. I guess if I was a young bloke with $100k plus in cash and a low risk profile who wanted to enhance that plan a bit, I might think in terms of do the owner builder test on me old dad’s behalf, swap me chick magnet sedan for a ute I could drive around town picking up leftover building materials like concrete blocks, build me nice little two bedroom granny flat in ma and pa’s backyard (car accommodation doesn’t count in that 70 m2 – Not in Brissy anyway) – All for no more than $40k tops; And then continue saving to buy a block of dirt in the boondocks. Just in case I ever end up with a missus and 4 kids and really do need a big joint. But either way, a plan of some sort seems important – Given that waiting for Steve Keen’s 40% house crash doesn’t seem to be working out. You even get to add a bit of value to ma and pa’s property – Which they’d almost certainly credit you with when they sell I’d imagine – And all tax free as the joint’s a main residence for tax purposes. All grist to mill maybe Steve?

  42. WOOW Ned I really am speechless after that comment I really am!!!

  43. Let me know when you recover your powers of speech then Steve …

  44. Ahhh, serves ya right for trying to pass on some good, timely advice, Ned.

    Enjoying a day in HK. After flying with six or seven lesser carriers* during this trip, we can recommend Cathay Pacific Economy. Better in nearly every way than every other airline we’ve flown with recently. To our surprise, China is well ahead of any of the US and Canadian carriers in terms of technology, service and comfort.
    * QANTAS palmed us off on British Airways. Last time we’d suffer that arrangement! :(

  45. G’day Biker – Not sure it’s “good” advice? – Except in so far as it probably is at least a step up on waiting for Steve Keen’s property crash for them that really DO want a home!

    Never been to Honkers – But a mate told me his missus reckoned the shopping there was great – And he got some cheap software and a pretty convincing looking Rolex for $18 or somesuch?

  46. I guess if anyone was still convinced Australia will have a GPC, a 40% discount might look a lot better than your backyard proposal, Ned. If _we_ believed in the Great Property Crash we wouldn’t be continuing to build. We’d have sold during the 2009 upswing… and waited, cash in ‘pause’, like the incredibly patient bears… to jump in all-vulturelike… to carry off the carcases! ;)

    No bargains that we could find anywhere we went in HK, Ned. I have a genuine Rolex, which keeps pretty poor time… and a couple of fakes I picked up in Mexico (’95) and Jogjakarta (’96). Both fakes keep good time! Had a third fake, which I was diving with near Denmark, WA. “Look at this…” I said to my boys, “It’s keeping perfect time underwater… no probs!” “What’s that bubble in it, Dad?!” said the younger bloke. Minutes later, the ‘Rolex stainless’ turned a very dull grey, the battery failed… and I abandoned it.

    A month ago I was offered another cheap ‘Rolex’ in Puerto Vallarta. “That’s not a Rolex,” I told the vendor, who was quite offended. “Yes it is, Senor… it’s a genuine _Mexican_ Rolex!!” :)

  47. Timely advice.
    Pete if you had saved the equivalent amount of money I have when you were my age you would be probably be two thirds of the way to owning a decent house OUTRIGHT,
    buy a nice 2 bedroom unit in a nice area OUTRIGHT.
    It had been that way for donkey years up until about 10-15 years ago.
    So of course I have a right not to be happy about the situation.

    Yes that was a classic Ned great advice I live at home in my bedroom now, building a Granny Flat out the back to live in sure would defy the purpose of “moving out” wouldn’t it?
    That would have to be the stupidest advice I have heard in years.

  48. I think even deep down Pete would also think that was stupid advice, not that he would admit it after all you are the number 1 YES MAN

  49. Thanks for that mate (re the Rolexes) – I do enjoy a good belly laugh!
    Re housing – Yes, the good prof promised so much to us cashed up carrion eaters – But delivered so little!
    I’m still lauighing over the watches – My approach to time tends to be I checked the clock before I left home and had fifteen minutes to spare – You mob of whingers must be early! :)

  50. It was just a thought Steve – If you you don’t like it (as is your right), come up with something way better.

  51. Ned even though you and I may have a difference of opinion on the major issue(even though I am right and you and Pete are wrong), just putting that difference aside for just one second,
    I honestly didn’t know you were that stupid to make such a statement/suggestion like that one, like I said before I was “speechless” and still am because usually when I am debating someone I always have something to come back and say to them, but when you made that statement I really didn’t know what to say.

  52. Then I’m stupid and I’ll wait until you get your thoughts/feelings sorted out and do know what you want to say Steve – No probs?

  53. For goodness sake Ned, I am 24 living at home in my bedroom!!!
    What significant difference would there be by building a Granny flat at the back of my “PARENTS HOUSE” as oppose to me living in my bedroom as I am doing so now???
    And then you go on to say keep saving, Why would I want to waste all that money for living the same lifestyle that I have now and then start saving all over again for a house???
    Have you totally lost your mind or what???

  54. Steven: “Pete if you had saved the equivalent amount of money I have when you were my age you would be probably be two thirds of the way to owning a decent house OUTRIGHT” Yes, I’m aware you think your a$$ets are quite remarkable, Steven. Both my sons around your age have many times more… but it’s not that fact of which their mum and I are most proud. It’s their independence. They did it without our help… and without free-loading off their parents, son… . ;)

  55. Once again Pete avoiding the entire substance of that comment I made, just spin and making assumptions that are not true, if you go by those assumptions you made about me then maybe I could come to the assumption that you think your sons assets that are MUCH MORE THAN MINE are also quite remarkable but I wouldn’t do that would I because its quite wrong to make assumptions.

    PS you don’t seem so keen in helping your mate out on his Granny Flat dilemma, but now that I have mentioned it, I wouldn’t be surprised if you did now.

  56. Your both too easy,



  57. Dunno why we bother with this nit, Ned!~ :) Not worth our breath…

    What assumptions, Steven? Go ahead.

    My mate’s granny flat?! WTF are you dribbling about now… ? :)

  58. I don’t have a granny flat dilemma Steve. But even as a very small time property investor, I’ve definitely started to become interested in properties that have that potential – Leastways if they are within reasonable striking distance of a major central business district. Which is why I mentioned the thought to you – I thought there was just a possibility you could see some merit in it from your perspective as well. But if you don’t then that’s fine – I’m not here to try and convince anyone of anything.

  59. To answer your own Questions Pete all you you need to do is scroll up and READ, its not hard really

    When you start asking questions you pretend not to know the answers to its quite obvious you have no answers to them and you are loosing,
    You are even out of SPIN.

    Do you want me to downgrade you to FLYWEIGHT aswell Pete???

  60. Yeh thanks for that too Ned

  61. You’ve really hurt my feelings now Steve – You’re gunna downgrade Biker to “my” level!!! Ahhh guffaw, guffaw, guffaw … :) Biker, you have been relegated to the lowest of possible imaginable depths!

  62. Back in Oz, Ned. Haven’t missed much, I see. So this fella with all the baggage is now ‘rating’ his fellow bloggers. If he had a cerebral cortex, he’d be dangerous, mate. Interesting to note all your ‘minus ones. Wonder which funny little gnome insists on giving you the finger each time you comment(?)

    Have you noted his reference to pugilism…. lightweights, flyweights, uppercuts(?) Steven must consider himself a bit of a scrapper… . Probably well known to the authorities. Definitely a class act. ;)

    We will get up to QLD, mate. Missus has a long list of places she wants to visit (or revisit). When she first landed in Oz, she started in QLD, but hasn’t been back in 35 years. SHe has talked about a two-year ride around Australia, but has so many OS locations on the list it’ll probably just be Tassie to FNQ! :)

    My priority now is to check out (and finish) the new place. Nice high location overlooking a lake and park. Fresh breeze right off the Indian Ocean. Then we’ll start work on the next plans. How are yours progressing, Ned?

  63. We need some new posts please Reckoners to stop these puerile and dreary comments. Greg Atkinson should go back to writing diets books. Keep comments here intelligent please.

  64. Buying a house as an investment is almost like running a mall business this day and age. Why open a clothing store or a cafe when you can buy housing. Don’t have to deal with employee’s, superannuation, sick days annual leave etc and it gives you returns of 25-35% of its value in one year during a non-existetn GFC.

    You can’t lose with property and you would be mad not to be in it in the next 12 months, buy something sustainable and reap the rewards.

  65. books? Seems you are unable to follow links or use Google correctly. Anyway please direct me to one of your awe inspiring posts so that I may learn from you master.

    Greg Atkinson
    January 11, 2010
  66. HAHAHA
    You are very good at making assumptions that are not true but yet you want to avoid FACTS, thats the difference between you and I pete I deal with FACT you deal with ASSUMPTIONS that are NOT true.

    Who ever is giving those thumbs up to my comment and thumbs down to yours, it would be good if you or you people could make comments aswell, Its quite easy dealing with people of this mentality, people who suggest to build a granny flat as oppose to moving out, and people who pretend not to know what I am saying because they can’t answer the question I make, but I must admit it is getting a bit lonely being the only voice for common sense.

  67. Ned you still haven’t answered my question, the question was:

    “What significant difference would there be by building a Granny flat at the back of my “PARENTS HOUSE” as oppose to me living in my bedroom as I am doing so now???”

    All your reply was just SPIN related to the he topic of GRANNY FLATS and your interest in them but yet at the same time NOT IN ANY WAY related to answering the actual question itself, thats what I call SPIN with a capital S.

    Why is it that you can’t answer the questions that the people put to you is it really that hard?

  68. G’day Biker – Steve seems to feel a nice big housing crash would be a good and reasonable and fair thing. Some agree. And some don’t. But either way I guess we all have to make our own calls on what we reckon the liklihood of it is.

    I’ve roughed out one house plan I reckon will be fine. The other needs more work. No problem though – I won’t be doing anything until I see where Ken Henry’s stuff looks like taking us.

    Facts are the GFC (and your comments) have motivated me to look at an overall financial plan – With developing that double block of land I’ve got being an obvious option. Must admit I’ve never had a financial plan. But I’m real sure I need 5 and 10 year ones now. And that there’ll need to be some flexibilty. And that they should probably lean towards assuming a low cash rate rather than a high one.

    And at this stage I’m still trying to figure out what the right questions are to ask as you say. Superannuation is a tricky one – I’ve got to look at how and when and why I might want to get money out – Including the tax liability at different ages. Although I was pleased to see there is a low-rate threshhold – Maybe I’ll be able to make use of that.

    And even stuff like paid employment – There is some 10% rule to consider there regarding super contributions – Which I gather would affect my ability to make concessionally taxed contributions from income derived from assets.

    Will Ken Henry recommend a national land tax? What will the states’ responses be? What will happen with CGT? What are the best types of entities to hold assets in and why? More stuff than I can poke a stick at in fact. So at this stage my thoughts are going along the lines of aim to get financial plans figured out by mid year.

    If nothing else they should give me a feel for just how realistic it is to continue to aim for being a self funded retiree – If it looks like being either unrealistic or more effort than I feel to exert or more risk than I feel to take, then the game changes a lot of course.

    I’m pretty sure Henry’s stuff will give me a few more hints! :)

  69. Once again are you going to answer the question?

  70. Steve/Pete/Ned – this thing that you have created in this thread, please stop feeding it and let it die. I was kind of hoping that amongst people’s new years resolutions would have been the desire to be more polite and respectful on the DRA website, was it a false hope?

  71. G’day Steve – The major potential financial advantage I’d envisage would be the possibility of adding significant value to your parents’ home at minimal cash cost to yourself at today’s prices. (On the assumption that your parents would credit you with the value of that at future prices if/when they decide to downsize – As most people seem to.) But you’d need to do your sums in relation to same and have talked it all through very thoroughly with your folks of course. What are your plans? What are theirs? Just how much value would a granny flat add in your parents suburb for instance? The issue of side access to the property (and thus to the granny flat) could be an out and out show stopper – There’s lots of stuff I don’t know about your situation of course.

    The ancillary possible benifits could be things like learning how to construct your own home – Which is skill that I value having. And which could be real handy for you too if you should decide to buy land and build later. Plus the freedom to have the run of your own digs – For whatever that may be worth to you personally.

  72. Don if you don’t like it then don’t read it mate, its that simple, if you don’t like a TV show do you sit their in misery and force yourself to watch it???

    Am I stopping you or anyone else for that matter posting comments on here???

  73. Yes it is there* before Pete or Ned remind me

  74. Sounds damn good to me Don! Aussie housing issues have definitely been done to death. But it’s a big money and emotive issue and blogs on same can tend to take on a life of their own. Stocks and commodities and currency traders should probably hope that DRA never mentions them again possibly? :)
    My personal interest lies more along the lines of this article at the moment anyway:
    Doubt Greg will mind too much???

  75. The house price debate has been done to death as they say. Everyone keeps going around in circles simply because the housing market can vary from street to street. Some areas are probably in a bubble, other areas will be undervalued and none of us can control where prices are heading. The whole market could virtually change overnight if the Government decided to give the system a tweak via the taxation system.

    Ned has kept me focused on the Henry review and for me that one of the things all investors should keep a close eye on, the others being our export statistics, the Baltic Dry Index and what the Chinese are doing with their economy. (thanks for the plug Ned)

    Greg Atkinson
    January 11, 2010
  76. I completely agree that the tax review will make very interesting reading. I am also mindfull that no government orders such a review unless it already knows the outcome so it will be nice to know by what method(s) they are going to fleece us :)

    I am taking your advice Steve, I have hit the “mute” button on yours and others posts until they are readable again.

  77. Greg you say other areas will be undervalued,
    Can you name me one area in Australia hat fits this???

    Because if you look at the international statistics most areas in Australia are mostly extremely unaffordable

  78. Agree, Don. It has been done to death. I’ll ignore the provocateur.

    As Greg and Ned state, which way it all goes may very much depend on the KHR. We won’t go beyond the planning stages with our next one, until we know more, Ned. Might be worth mothballing your two projects until we can all access and digest some detailed information.

    Possibly Labor might consider the tax free ‘$5K Plan’ Canada has in place. That’s $10K per couple, growing by $10K per year… . It hasn’t really been a big winner there. Most folk are getting less than 1% pa on savings.
    Great to see Oz super cash rates growing again, BTW. :)

  79. Steve I reckon some parts of Western Sydney still may be undervalued. Remember there are some areas in Sydney that were hit hard when the prices came down in 2002/2003. In 10 years time as Sydney’s population grows a house on a good block 15-20kms from the city might be worth a lot more than it is now. (especially as more areas are rezoned for medium/high density housing)

    But who knows? Maybe in 10 years time it will be “uncool” to live in a house that far from the city and the drift towards inner city living will gather pace? I guess it all depends on what people “value”. Land? Lifestyle? Amenities? Close to work?

    I also hear that there are still apartment bargains to be found around North Sydney.

    Of course we also have to factor in the State & Federal Governments. What could they do to upset the apple cart?

    Greg Atkinson
    January 11, 2010
  80. Ned, 11/01/’10: “…at this stage I’m still trying to figure out what the right questions are to ask… ”

    For all of us, the KHR makes this critical. We had really only tuned our long-term planning to March 2010, by which time the current project should be paying itself off. Our accountant is happy to act in an FA role, to a limited extent. We need to see him before February (major refund due) so I’ll fly some ideas past him.
    He’s a little biased towards property, but this has never really bothered us… .

    Attempted to award you five stars and a thumbs-up for your considered and thoughtful response to a reader’s question, Ned; but neither the stars nor the Golden Digit work for me. ;) It was earlier explained that this was because I was OS, but it may well be that this was BS…. Ha,ha…. !

  81. One of the downsides of the low interest rates which is not widely covered in the news is the way that pensioners who rely on interest for their living expenses have copped a hosing. The same people must be getting hammered in the US (what are deposits paying there 1%?), I wonder how long before some of them decide to risk putting their hard earned cash into the stock market :( What a raw deal, you scrimp and prudently save responsibly all your life only to get smacked for problems caused by others who cant. I suppose that is the advantage of the fiat system, you can just crank up the press and effectively steal all the savings you can get your claws on. At least in North Korea they don’t hide it:

    Sweet lord talk about ripping people’s hearts out :(

  82. Or, you can just buy gold.

  83. Don, when we told North Americans our sons were getting 6.8% on their savings, they nearly barfed. That’s 9.6 times what most Canucks are getting. Their question was “How do we transfer our cash to Aussie banks?!!” The current thinking is that interest rates are ‘on hold’ until mid-2010 in both Canada and the US.

    Not a great fan of hoarding precious metals. I accept that there’s a hedging value, but money should really be ‘working’, in my view. Regardless of what we think of banks, money in the bank is providing a service. Same with shares, where funds are building companies. Even Super is supporting the latter. And property? Well, don’t start me on the ‘shelter as a basic need’ rap. I guess one could argue that gold has multiple uses… and provides employment to both miners and mining communities…. but a few ingots in storage or underground aren’t actually ‘doing’ much. Not enough to fit through the ‘eye of a needle’, anyway… . ;)

  84. I agree Pete, owning gold is effectively a no confidence vote in currency and the economy with the downside that it is also “dead money” in that it doesn’t earn interest, it generates no real economic activity (apart from us miners :) ), it just sits around until every gold bug’s dream comes true and the fiat currencies melt down to nothing and the Day of Reckoning arrives. That doesn’t sound like a nice mindset to be in at all, sitting on a heap of bars spiderlike, waiting for the four horsemen to ride forth :(

  85. Don, 12/01/’10: “…sitting on a heap of bars spiderlike, waiting for the four horsemen to ride forth…”
    Great imagery! I’ll never visualise a stack of ingots again, without an arachnid… .

    I really have little to complain about, all things considered. Yes, I’ve mistimed a couple of investments, but we’re at the stage a lot of folk might aspire to when approaching retirement. As Ned has often implied, that isn’t enough, though. We knew people, who, back when bank bonds were returning us 18.75%, wrongly believed they could retire… then later were ‘forced’ back into the work ‘force’.

    So the fact that many of us now have three or four asset classes ‘covered’ is no grounds for either complacency or lack of action. We’ll never see a cent of government pension money… and our choice for independence may be viewed by some as greed, but it’s part of our plan to ‘Retire Happy, Wild and Free”.*
    * Great book… .

    The North Korean situation is abysmal. I’d read about it before, but your URL update really brought it home. Personally, I doubt that the KHR will contain anything that alarming (!) but it may have real repercussions for SFRs… ourselves included. We take comfort in the fact that a.) we figured Super out long ago… and it covers all debt; b.) we are positively geared on most properties, with appreciable offsets reducing interest;
    c.) we have sufficient cash to weather any corrections; d.) due to a, b and c, we have a range of options and choices; and e.) we’re both fit and healthy. Nine friends or close associates have died in their fifties.

    Of all the five above, our well-being in retirement will be most affected by our health… and the range of options and choices open to us as SFRs. Hopefully the KHR will increase and support those choices for folk who choose _independence_ in their retirement…. but then, I’m an unapologetic optimist…! Am I on the wrong website?! :)

  86. Don, you complain about the raw deal been given to you? by the government, then you complain about an alternative which has done very well since 2008, let alone 2000. No pleasing some.

    Gold is currency, so holding gold is not a no confidence vote in currency. It is a no confidence vote in the obligations of the government & its attendant bankers, welfare recipients etc.

    Some day the likes of BIKER Pete will come to realise what the government is putting into your hand (through property price appreciation etc) it is withdrawing straight from your AUD bank account.

  87. Ahh, but my CGT will pay your pension, Justin. ;)

  88. No, by the time I’m retirement age your CGT will be long gone paying the interest on the debt the government is accumulating so as to buy your precious mortgage paper, BIKER Pete.

  89. Justin, I missed out a word sorry- I meant “owning gold is effectively a no confidence vote in FIAT currency and the economy” so I agree with your reply.

    I am not complaining as such, just pointing out the tragedy that in order to protect your purchasing power, you are forced to put it in an asset that effectively just sits there waiting for events to transpire that either force governments to re-adopt some kind of gold standard or for the fiat currencies to be devalued significantly over time. I think we would all like to have it in some asset that is generating wealth rather than just sitting there but this is the real world and that is the way of things. No government is going to give up its printing press willingly, that is for sure.

  90. I take it all your property is in WA Pete?

    Did you see the report the other day – WA on top (yay for mining and resources!) with ACT second (boo for bureaucracy!). The first is great news, the second is definitely NOT good news :(

  91. Don, it used to be the case that you could deposit gold in the bank & earn interest, in gold. That gold would have been lent out by the bank for productive purposes.

    In fact you still can, if you have enough of it. That’s why they are called bullion banks. Every bank used to be a bullion bank.

    The fact that “you are forced to put it in an asset that effectively just sits there waiting for events to transpire”, is purely a construct of a dishonest & coercive government.

    If you continue to hold the obligations of such a government & treat them as if they are ‘money’ you are bending yourself over & allowing yourself to be reemed hard up the back passage.

  92. Ask yourself Don, are you one of those?

  93. Yes, a paid-off mortgage is precious, jusTIN. We had a mortgage-burning party on our main property, two decades ago, in fact. Champagne, the works. I hope you’re right about the small amount of CGT we’ll be paying! :)

    Don, all of our property is in WA, in two main locations… . One is beachside, highly sought. The other, where we have fewer homes, is out of the price range of most… and is rising so quickly we’ve now stopped purchasing there. Didn’t miss the reference to WA’s economic strength… and, like you, was staggered to see the ACT second. A bit of a worry, isn’t it?!~

  94. Now jusTIN, your New Year’s Resolution needs to be framed “I’ll endeavour to refrain from calling all those who disagree with my views arse-bandits. Henceforth I’ll be a more polite little arachnid!” ;)

  95. I’m bored, you’re boring BIKER PETE.

  96. Once again I think we are in agreement Justin with regards to paper money. It is lamentable that people have to devote a fair amount of resources in looking over their shoulders wondering how much printing is going on and what it will do to your savings.

    Take this article by Theodore Dalrymple and the example of his father (excerpt):

    “At the time, I gave no thought to the effects of this inflation, which tended to be discussed in purely economic terms—experts would ask, say, whether inflation was compatible with satisfactory economic growth. In a naive way, I assumed that since most people’s income tended to rise with inflation, there was nothing to worry about. I did not suffer personally because of it, nor did most of the people I knew. If a product once cost y and now cost 10y, what did it matter, so long as your income had gone up by ten times, too? Since people seemed better off, at least measured by what they could consume, one could even assume that incomes had risen faster than inflation.

    Yet this was a crude way of looking at things, as my father’s fate should have instructed me. He sold his business in the sixties, at the end of the period of price stability that had reigned throughout his life, for what then seemed a large amount of money. He was a man who, for both temperamental and ideological reasons, held a deep contempt for financial speculation and wheeling and dealing, with the result that he did nothing as inflation inexorably eroded his savings. He grew poorer and poorer through the remaining 30 years of his life, and might have sunk into poverty had he not moved into a house that I owned. And this after reaching a level of wealth that, relatively speaking, was greater than I shall probably ever know.”

  97. Bubbles gonna burst, one day.
    Maybe last year, maybe next month, maybe in 2011.
    Quick, buy gold and shares now and subscribe to our website, cause the bubbles gonna burst, one day.

    Just like the sun will go supanova, one day.

    January 12, 2010
  98. All I had to do was ask for a new post and the Reckoners kindly obliged. That is quite a talent. Unbeatable I would say.

    Am I right in saying you can get a home loan on Australia with 5% down, only 3 months of savings, so long as you take out……. an insurance policy to cover the bank against losses! Golly sounds a little like, hmmmm, a scheme that’s been tried somewhere before…..

  99. That’s right TiredOfCrystalBallGazers, the bubble will burst one day. You must have a crystal ball or something.

    When will it burst? It could well go on for as long as people like you bend yourself over……..

  100. Greg,
    I dont think you are correct because lets say the suburb in Sydney that has the lowest social economic area, the price might be 200K for the avg home, the average wage in Sydney is 60K, I think it would be less if you took out all the rich peoples wages that make that figure look more than it probably is, but lets just say it is 60k anyway.

    60k times 3 is 180K (3 times wage is the international standard for a house being affordable) so even then it would be more than 3 times BUT you also have to take into account the people living in that area would be making nowhere near 60K a year, they would probably be lucky to make 30K, so if you divide 30K into 200K thats almost 7 times income


    As the saying goes “When an average man can’t afford an average house in an average area, something has to give”

  101. Think you’ve missed the point, Justin. Yourself and the other excitables who bother with this website keep getting suckered in day after day…..I tune in every 6 months just to have a laugh at all the BS that passes for financial information/advice on these pages.
    My tarot cards tell me this – that you suckers will still be chatting about the same BS in 6 months time.

    January 12, 2010
  102. Steve I guess the harsh reality is that if you earn less than average wages then it will be a stretch to own an “average” house. I agree that Sydney home prices do look a little more expensive then they were say 20 years ago when young couples were heading out to the new estates beyond Parramatta. People seem willing to spend more on housing and the handouts from the Government only push prices up more.

    I guess the only way the situation will be improved is if more land is released and state/local governments stop gouging money out of developers.

    When I said some areas were “undervalued” I meant in the context of prices across Sydney. I did not mean to imply they were undervalued by international standards.

    Anyway it seems to be getting a touch unfriendly on the DR site these days so I might pull my head in and not comment for a while.

    Catch you all in a few months!

    Greg Atkinson
    January 12, 2010
  103. I guess the harsh reality is that if you earn less than average wages then it will be a stretch to own an “average” house.

    Yes thats true Greg but what is also true is that if you earn average and even above average wages then it would also be a stretch to buy a below average house these days and when that happens there must be a correction

    Although Yes I agree with you that it wouldn’t hurt for the government to release more land, infact it would be very good and it should be done.
    However I think all this talk from property investors, banks, real estate agents and those with vested interests that there is an undersupply of property is not quite true, I know there was a report a few weeks ago on the homeless rate is increasing, but I don’t think it has increased all that much at the end of the day most people still have a roof over their heads so there is no REAL SHORTAGE the same cries happened in the UK and USA before their markets corrected.
    What I think has to be done is for the government to implement policies to discourage property investment like removing negative gearing, tax people alot more if they want to own more houses apart from the one they live in

  104. JusTIN, 12/01/’10: “I’m bored.” Sorry to hear that, son. You were positively quivering with excitement when you posted: “… you are bending yourself over & allowing yourself to be reemed hard up the back passage.”

    Now, I understand that you have strayed onto a Site Category clearly titled ‘Real Estate’ by mistake. What I really don’t understand is why you keep coming back, JusTIN. I’m a vested interest. I’ll be here long term. You’re bored by property issues? The answer is simple, son. Scroll up to the top of the screen. See that little header ‘Precious Metals’? Click on it.

    The Freudians would see a very, very clear message in your freudian double entendre: “I’m bored.” The solution is to stand up straight, son… .

  105. First, your name’s BIKER Pete.

    Second TiredOfCrystalBallGazers, why are you here now? & why will you be back in 6 months?

  106. jusTIN, mate, yer secret is safe with us, son. What happens @ DRA stays @ DRA, OK?

    Now I _was_ going to revert to BIKER Pete, once I was back on my bikes, but I can see that my Pete* tag annoys the living excreta outa ya*, so I’ll STAY Pete, OK?! ;) * And we KNOW why that is, don’t we?!!!

  107. No, your name is BIKER Pete, it always has been.

  108. It’s whatever I choose it to be, just IN. I’ve no problem whatsoever with you calling me BIKER Pete. It keeps my tag humming along like a nice V-Twin. And since you haven’t rejected my freudian interpretation of your nocturnal proclivities, I’ll now presume you’re happy with Just IN, with all the M-rated imagery you’ve supplied for our fellow bloggers… .

  109. You should always wrap that rascal, Justin. John 9:23

  110. I love you guys. Don’t stop bickering. Just make sure to include the facts. :D

    Biker Pete, Ned, Greg et al: Here’s an awesome forum I bumped into when I was searching up home buying and building:

    Also read somewhere Ipswich is on the up or something: Whaddya guys think?

    Where’s Pete the bubblepedia guy?

    First Home Buyer
    January 13, 2010
  111. …renters…to figure what the correct amount of rent would be, you take the average income in the district, multiply by three, then multiply that amount by the percent of square floor area that you will live in relative to that of the landlord’s entire structure…then, calculate the momthly mortgage payments necessary to cover that amount in say a 25 year mortgage….the amount that the landlord charges above that figure will be claimed as a tax deduction on your income….and the amount that the landlord overcharges will be taxed at a rate closer to 100% than 50% by your municipal government…

  112. Thanks for that somersoft URL, FHB. Hadn’t seen this site before.

    Pete the Bubblepedia Guy is around. Not the same bloke these days, after Keen imploded… .

    Thanks for the interesting formula, Mike. Hadn’t heard of renters* setting rents before. The supply and demand model is the one which operates at present. Have you offered the formula to agents or landlords yet? Seems a little utopian, but these things are always worth a shot. Personally, we’d listen to a novel offer from a tenant who put up an interesting proposal. The tax aspects are well beyond (y)our control in Oz, unless your real tag is Kevin or Wayne, but if it’s Ken you might have a chance with that… . At present the system works like this: Owner and agent set rent; small or long queue forms; tenant is chosen; owner happy with tenant’s care of property after lease expires; owner renews lease; owner lodges tax claim. We saw the identical system in operation overseas, except in Mexico, where it appears owners _don’t_ declare rental income and don’t claim interest. Both realtors and owners confirmed this… !

    Remember that any initiative which reduces incentive may reduce supply, forcing rents up. It’s entirely possible that Australia’s Ken Henry Review might reduce incentive to build more homes, but we doubt it.

    * In Australia the term used is ‘tenant’.

  113. Who do you get to manage your properties Pete? The big real estate firms or a rental specific company or DIY? I have had nothing but grief from the big boys such as Ray White and Raine and Horne. In Cairns it was beyond a joke – I think they went through about 6 property managers in the three years they had it.

    I am currently with a small firm in Melbourne who have been great so far.

  114. We have different realtors in the two different locations, Don. We’ve found Ray Whites OK in WA. We could probably manage the rentals ourselves in full retirement, but being overseas up to six months a year makes that difficult. Funnily enough a smaller firm we are still using in the second location charges more than RWs, but represents our interests less. At one stage we had some ‘damage’ issues and RWs were brilliant, recovering 100% of our losses.

    In 32 years of offering rentals, we’ve really only had two mildly difficult tenancies. Usually, if tenants respect our property, we don’t increase rents… just renew leases. When interest rates fell, we used the savings to add comfort to tenants’ lives… . We known for fairness and I think that’s why tenants want our homes. Helps that a lot that many are new, of course… .

  115. You obviously have a problem BIKER Pete. Otherwise you wouldn’t be constantly taking the bait. How many people do you have problems with on this site? More than one that’s for sure.

    Fact is, only someone thoroughly embarrassed by the drivel he’s written previously on this site would change their name.

  116. Typical story in The ‘Stralian about the pending “forecast in rents”
    The usual property spruiker-stuff… frightening on so many levels.

    Interesting that the featured real estate agent is pictured outside his own rental property… which has a small warning for potential renters: Beware Of The Dog.

    Aint life sweet sometimes!?

    Chief Squirrel
    January 13, 2010
  117. Hi Justin – I’ll be back in 6 months just to have a laugh at all the shite YOU’RE writing. (BTW, might be time to cut back on the red meat….you sound a bit aggro).

    January 13, 2010
  118. I only have a small two bedroom townhouse in Melbourne but do the same thing. Last year I put in more air-conditioning downstairs, the tenants said it wasn’t necessary but I would bet that when the thermometer hit 42 degrees the other day they would have cranked it up :) I am sure it will come in handy for winter as well.

    My mum and her brother also follow that pattern, they owned a hardware store in country SA (gawler) and as a rule put at least 10% of the rent per year in improvements as well as matching any money that the tenants spent on upgrades as well. They are doing the same in their new property as well, doing most of the work themselves which keeps them out of mischief :)

    There is nothing sadder than inspecting a property (if you are renting or buying) that has had nothing spent on it in years and has just been left to degrade. We have come across a few like that in Cairns – kitchen outdated, major appliances showing bad wear, horrible furniture from the 90’s, huge stains on the carpet and horrible smells in the air :(

  119. Just for you FHB :) :

    Facts (as best I can determine them):
    * From 1880 to 1955 Sydney house prices had their ups and downs but pretty much only quintupled in the period (which did include a big post WWII boom)
    * Since 1955 Sydney house prices have gone up by an average of 9% pa – A few flat spots but no really big downs as such
    * Similarly since 1955 for the 6 major capitals – But a bit lower at 8.6% pa average
    (Thus the stuff about house prices double every decade – Truth is they’ve done better than that since 1955 – Gone up roughly 100 fold)

    * Why has this been so?
    * Is the post 1955 trend sustainable?
    * For how long?

    Practical issue:
    * What happens to our dreary little economy if/when we don’t/can’t sustain “it”?

    Moral issue:
    * Do “we” want “it” sustained?
    (Keep an eye on Ken Henry’s tax review for hints regarding what acceptable balances at this time between “our” moral and practical sides might be I think?)

    Ipswich – Can’t help sorry – Bit too far from home to have ever really been interested – But that’s just me – I like my housing investments to be close enough to do some work on them myself if required.

    PS: A bloke called Nigel Stapledon put together the long term house price trend data I mention. Steve Keen seems happy enough to use Stapledon’s figures.

  120. This talk about rent increases is a bit puzzling to me as there have been 4 properties for rent for about four months in a nice inner brisbane apartment complex where i live. they have actually put the rent down a couple of times and still available. I have the feeling this is mostly property interest groups and their subserviant media whipping up a story after being scared by falling mortgage approvals. australian property sector is such a joke. i would say the clock is ticking on this one and as a result the australian economy (which i also believe is still a banana republic as paul keating once suggested)

  121. Just wait until rates get back up to realistic levels.
    Unaffordability up and prices down.

  122. Just IN wrote 12/01/’10: “… you are bending yourself over & allowing yourself to be reemed hard up the back passage.” Then Just IN wrote 13/01/’10: “Fact is, only someone thoroughly embarrassed by the drivel he’s written previously on this site would change their name.”

    Pretty much sums Just IN up. He’s not embarrassed at all by anal rape. It’s his area of specialty.
    Changed yer name for you, Just IN.

  123. Only one thing is clear from this long thread; One group of people or another are going to end up being losers in the future (short, medium or long-term – take your pick.)

    So perhaps people who own a house (and a suitably large mortgage) may find themselves one day in unenviable position of owning a property only worth half as much, or may even be forced to sell it at a great loss. What would happen to such people? I shudder to think about it.

    Or perhaps, our bubble persists – indefinately – into the future. Which means people like me who passed on the opportunity to buy a property (many, many years ago) are now effectively locked out by absurdly high prices and impossibly long and expensive loans.

    I don’t even have particularly fancy wishes (a small unit/apartment would be nice), but as a single (and still relatively young) man, I feel my options are limited. If there is any good news for me, it’s that I no longer fret about it. The fact is, if affordability doesn’t improve significantly “soon” then I can just forget about owning my own “home” …

  124. 123 comments and only about 5 worth reading. Has DR always been like this?
    Daniel maybe a paradigm shift is in order for Aussies, one where home ownership is no longer life’s objective. The iPod generation might be the unwitting champions of that.

  125. Daniel, as with all investments, there’s risk. If you believe there’s even the _slightest_ risk of losing 50% of your hard-earned money, then you’ve been wise to decline the $21K FHOG. As you say: “What would happen to such people? I shudder to think about it.”

    Yet many investors in the share market ‘lost’ up to 54.5% of their holdings. Imagine the shuddering… .
    Some institutions like the (Australian) Anglican Church ‘lost’ $160 mil and it’s rumoured that their UK institution lost $2.1 billion. Imagine the fallout there… .

    As you’re still relatively young, you shouldn’t rush into property. If you fear that property values will fall to 50% of current values, keep renting. At some point, preferably well before retirement you may wish to review that decision. Ideally you’ll pick up a home at a discount even better than Steven Keen promised… .

  126. Yes Daniel, before you retire, you had better be quick get in now mate or you will miss out forever bud!!!
    Is this the point where he is supposed to panic???

  127. Pete said, 14/01/’10: “As you’re still relatively young, you shouldn’t rush into property.”
    Just IN said, 14/01/’10: “…you had better be quick get in now mate or you will miss out forever…”
    Daniel said, 13/01/’10: “I no longer fret about it.”

    Here are a few concepts you need to understand, Just IN: 1.) Neither you nor Daniel need to fret. You both believe a major correction is coming; 2.) Therefore there _is_ no need to panic; 3.) When the crunch comes, Daniel should not panic, he should _act_; 4.) As he’s young, he has plenty of time to wait for the GPC; 5.) We personally rely on tenants’ rent; 6.) When the FHOG was picked up by 200,000 families, that put a fifth of a million rentals back in the pool; 7.) Such an event has more impact on us than an interest rise, or a 50% property collapse; 8.) Anyone who commits solely to one asset class is “… putting all their eggs in one basket… ” as the old saying goes. 9.) We’re told, by the experts, that Super isn’t an asset class, just a vehicle for accessing asset classes in a tax-friendly environment. Yet the capacity to commit a very large percentage of income to Super should not be ignored. Maybe Daniel might look at sal-packing instead of purchasing a home(?) If he does this well, when he retires he’ll have millions to access, hopefully still tax-free, to buy a house. Mind you, the KHR and Labor may decide to mess with Super(!)

    Bottom line, all forms of investment have risk. If Daniel perceives there’s a 50% housing crash coming, he should stay _well_ away from property of all kinds. The bank may be the safe haven Daniel needs… .
    You may advise him to commit to another asset class, or a few asset classes. What would _you_ advise a young bloke to do while he’s waiting for the crash?

  128. This 40% correction that some are expecting, it will not happen in isolation ie the economy will not be choofing along merrily whilst housing collapses. It will be in response to deteriorating economic conditions as well, whether that is because of extremely large increases in interest rates or high unemployment or both. I am not sure that people will be that happy snapping up so called bargains if they are looking over their shoulder, wondering if they are going to get the bullet.

  129. Uhhh, Don, I’m not sure we should settle for a 40% property correction here. Let’s stay with the last estimate… 50%… OK? (I think we need to reflect exactly where the lack-of-confidence-in-property bears’
    fears are based. Daniel says ‘half’… let’s stick with that. Bear with me… . ;) )

    Our travel abroad indicates that it’s the investors who are getting the US bargains, either as rentals or holiday homes. As you’ve suggested, the scenario the bears propose will be accompanied by a total economic meltdown, which would have major impact on our employment, the tax base, GPD, shares; in fact, nearly all investment… except gold, which rockets to $10K, providing the faithful with mega-yachts, McMansions with plumbed-in dancing girls, the whole drool, in fact.

    So it really _is_ Armageddon for the rest of us, I’m afraid.

    You’re probably familiar with the Cargo Cult phenomenon, but I’ll recount, anyway. World War Two brought vast quantities of consumer goods, including military vehicles into New Guinea and other Pacific islands. After the war, it was all left to the locals, gratis. Some enterprising old shamans a couple of decades later convinced the locals that _magical thinking_ would bring about the arrival of vast quantities of consumer goods. All they need do was prepare for the ‘cargo’ to arrive… and wait faithfully, arms outstretched, on the mountain top. It’s this ‘magical thinking which I find fascinating. Magical thinking is “…causal reasoning that often includes such ideas as the ability of the mind to affect the physical world….” Facets of this reasoning persist through time…. Plato and Buddha embraced it. It has been repackaged recently as ‘The Secret’.

    Hard to know, isn’t it? Maybe there’s something to it, but whenever anyone proposes that one need only imagine their desires and wait, I tend to back away very, very slowly… then run like hell….. ! :)

  130. 50% instead of 40%? That makes me a property bull then – sweet!

    As far as “The Secret” is concerned, it always reminds me of that joke where a guy finds the genie-in-a-bottle at the beach and asks him to: Make him incredibly rich with the most beautiful woman in the world as his wife and to make his appendage drag in the sand. The genie supplies this by producing a giant chest full of gold, Jennifer Hawkins and then cuts both his legs off. Be careful what you wish for…..

  131. Ha,Ha…. !! Laughed meself legless, Don… .

  132. It’s a pity we can’t take this discussion to a forum, because it’s very difficult to address all of your posts in this blog format. I think I got some great replies here and you’ve all given me some different perspectives.

    Pete – Forgive me if you have already explained this, but what exactly is your view on the housing market? Do you think current prices can be sustained (or grown?), or do you think a correction (be it 50% or whatever) is coming?

    I’m really not certain which way it will go, but I feel (like many) the prices are really not “fair” right now (Yes, I know, not a term to be used when describing markets, but it’s how many people feel none the less.) What do you think?

    The off-the-cuff comment I made about houses being potentially only “worth half as much” was really only made in light of what has happened to other Anglo countries with similiar financial philosophies (e.g. USA and UK.) Perhaps our circumstances are a little different, but I feel our luck cannot last forever (especially in light of the “hard data.”)

    Also, when viewed in the context of a more conservative approach (e.g. Germany) it would seem our house prices are totally out of wack. But then, many Germans rent for all of their lives, and if they do build a
    home (or buy an apartment) they are normally nowhere near as big and expensive.

    Finally, I might add, I’m not really approaching the whole housing question as an investment. I am quite conservative in nature, perhaps a little risk averse, so when I purchase things, I tend to have savings first, then buy it outright. Of course with a house, I realise this is not possible even in the best circumstances (for most people) but the idea of a life-time mortgage scares me senseless.

    Maybe as Sambo said, we (I?) really ought to be questioning “home ownership” condundrum … Is this path even right for me? Perhaps I should be looking at Super a bit closer?

    Sorry for the long winded post, but these sure are confusing times!

  133. 5 stars Daniel, your post is what DR is all about :)

  134. Thanks Don!

    Your point above about economic condtions and the housing market was not lost on me either. As my father likes to remind me, he lived and worked through a couple of recessions and never much noticed the difference (good times vs bad) – because he had kept his job.

    Obviously if you lose your job during the recession, what happens to house prices would be largely academic – you can’t afford it anyway!

    Does anyone know if DR Australia is planning on opening (and moderating) a forum?

  135. Pete I sure can relate to your thoughts on the ‘cargo cult’ mentality and how property investors are motivated by the same concept ie just because property went up by x amount in the past it will repeat this ‘magicaly’ in the future so they are safe to purchase at any price, even if it seems ridiculously high, and just sit back and let fate take it’s course.
    A good analogy from you for once.

  136. Thanks for your comments, Daniel. You may be about my sons’ age, I guess. Neither would publicly accept my verbal recommendations, but we think our _example_ may have been influential.

    Son 1: Shares, Cash, Property, Super… in that order.

    Son 2: Property, Cash, Shares… in that order.

    Son 1’s perspective: Nothing is safe, but I have time to recover. You don’t, dad. (Hence Shares first.)
    Son 2’s perspective: I have enough property now, thanks, Dad. Going to buy more shares. Super? Are you crazy? I’m 24, for KryZak!

    My personal view was just described by Ned. The situation is normal. If a crash did occur, however, I’d use my super assets to double my property holdings; just as Son1 bought non-stop when the ASX dropped to 3200. We did the same thing with our Super. In previous posts, I described how our location of first choice became too expensive to continue investment there. We then invested in a second beachside location we believed would involve less expense and a higher return. This strategy has worked well for us… so far! ;)

    Salary-packaging Super has worked far, far better than either of us expected. My eldest son, noting the long string of zeroes, has been putting the maximum allowed annually, into Super. I was impressed with his long-term view.

    If you’re happy renting, you should continue. That should not be because you’re hoping for a crash; but because you accept the conditions of lease, you’re prepared for rents to rise… and most important of all, I guess, you’re making much large(r) amounts _outside_ the property market than you can _in_ it. I’m not smart enough to figure out how to do that…. . :)

  137. Thanks, Bargearse. Glad you enjoyed the analogy, even if you didn’t completely understand it. My motivation is simple: I buy and build continuously. When markets boom, I sell houses. When markets are flat, I rent them. As I noted earlier, I’m not as sharp as fellas like you. If I was as clever as a few of you, I would hang around in the Real Estate section of DRA, giving positive encouragement to the poor bulls, to help them achieve the financial success, independence and freedom enjoyed by experts managing other asset classes.

  138. Pete, correct me if I’m wrong, but your opinion is essentially … Business as usual?

    I sincerely hope you and your boys keep your eyes open. I know plenty of people (including retirees) who lost their “backsides” the last time the stock market plummeted.

    And, If you look overseas, many people are now homeless who last speculated on property. Do you really believe that can’t happen here?

    It’s hard to have an objective point of view when you have such a strong vested interested. The irony of the cargo cult analogy is outstanding!

    I don’t pretend to be more clever than anyone, but I do hope to learn from other people’s mistakes. I think I will just continue saving for now…

  139. I don’t see significant speculation on Oz housing happening? Where are the “flippers”? Where are the developers rushing in to build more than required? Where are the Freddies and Fannies that legislation required to lend to the financially “untouchables”? Where are the no recourse/jingle key loans?

  140. Mind you, if ever the Oz government felt housing was a bit threatened, it just could decide to implement a few such tricks (plus making the home mortage tax deductible – which would result in Oz house prices “on steroids”) – And a few things I’m real sure I haven’t thought of. In fact if I was the Oz government/RBA/Treasury and loved my banks and hated housing bears I’d probably be sitting there thinking “I can continue to chew you poor dummies up and spit you out for more decades than you can even begin to imagine – Most likely!”

  141. No, Daniel, my opinion is “Never stop learning…” Remember, my wife and I have no shares, whatsoever. Our Super gives us access to the ASX… and we always switch from cash to ASX when there’s a stockmarket crash… then bail back into cash at a pre-set goal. This has worked very well so far. Greg Atkinson would say we could have done better… and he’s right! (So was our eldest… !)

    Now both my sons are young… and patiently explain to their anxious father that they will simply _hold_ through good and bad times. They’re convinced it’s time-in-the-market that counts. They do not borrow… and all their gains in indexed funds are simply ploughed back in, to accumulate more shares.

    Yes, we saw a lot of homeless people while travelling in Europe and North America, Daniel. Many were young, but there were quite a few my age and older. It would be remiss for me to suggest that they might have done better buying a home than speculating on shares!~ Perhaps many should have rented, rather than buying large homes their families couldn’t afford on minimum wages.

    And yes, I’ve a vested interest. We made pocket money out of shares… a few thou a year. We get a better return from cash in the bank… 5.7% tax-free at present. Super returned us more than 50% for a few years, if you take into consideration all the 30% tax dollars we shed. Gold? We don’t wear a lot of jewellery, but we buy well… .

    Pleased you’re able to interpret the irony of waiting for manna from the clouds. You see, we expect nothing but a very, very comfortable living from property. No freebies. No easy ride. We supply a service. We work fairly hard for half a year, to travel abroad the rest. Some people think we’re _lucky_ .

    My sons would agree your cash-in-the-bank strategy is wise. It would be worth considering something else in addition, to help reduce your tax burden… Super, perhaps; if both shares and property are too risky.

    Can a crash happen here? Well, some very clever academics _said_ it would. A very clever academic says it has already happened. ( I must have blinked and missed it! :) ) Please don’t worry that our family might lose our backsides. We are all fairly ordinary people, as you’ve not doubt gathered from my posts, but we’re fairly well insulated from debt, poverty and homelessness. Best of luck!

  142. Ned Australian property couldn’t be any more ramped unless the government just bought your home for you.
    What with residences free of capital gains tax and bribes (euphamisticly referred to as grants) to encourage those who are more cautious or reluctant to commit when common sense or circumstances suggest otherwise.
    In fact the worse the property environment gets the bigger the government bribes get.

  143. Ned, it all depends on your point of view.

    I know of a few very young couples who are getting loans with zero deposit down. Many of them were enticed over the last year to enter the market. Low interest rates and the FHOG was it all it took. Do you think it will take more than a single digit interest rate rise to break them?


    I think you’re a lucky man to have done so well on Super. Almost everyone I know at my company lost a fortune. I was at least smart (paranoid) enough to switch all my investments to cash before the king hit.

    You sound like you’re in a very different position to many Australians. I mean, if you own property outright, I don’t think you have much to worry about in the overall scheme of things. I will give your Super advice some thought, it doesn’t seem like a bad option!

  144. Well, technically No Bargeass – They could be WAY more ramped if legislation was changed in any of several ways. Which I personally see no need for government to do at this time – Given that house prices are chugging along just fine. But my point simply is that there’s lot of options in the future for maintaining the trend of the last 55 years.

  145. Ned, it’s called the RBA.

    Fannie & Freddy were operating as de-facto central banks, now they are the central bank, for all intents & purposes.

    Might I direct you to, there you will find ‘The Australian Money Market in a Global Crisis’.

    Wherein you will find such interesting tidbits as;

    “the Bank has made three major changes to its dealing since August 2007. Specifically, the Bank:
    • increased the supply of deposits at the central bank;
    • increased its holdings of ‘private securities’ (i.e. non-government securities) under repo and
    • increased the maturity of the repos undertaken.”

  146. Yes, I told you I was _lucky_, Daniel. Didn’t have to stand atop the tall mountain waiting for the C-130 Hercules to crash, hurting civilians and bringing untold wealth to my followers, either… . We own our main property outright and have as much as 80% equity in some of our rentals. I confess I giggle a little when some of our fellow bloggers think a falling Hercules will spread me through the jungle…. .

    Super? We know a lot of people who practise(d) ‘set-and-forget’ with Super. Like you, we switched out; but then in; and out again… a kind of double whammy, if you like. DR helped our decision-making. The income derived from our TTR pensions now is far more than many couples earn annually… and doesn’t dent the principle. It works for us in a tax-free environment.. and is tax free on top of other income streams. You’d be wise to see what the KHR brings. (So would we!)

    As I say, good luck, Daniel. My personal view is that Ned is right about the government and property. Don’t really know why governments seem to support Property Bulls instead of Goldbugs… . I mean, Goldbugs are always praising and applauding government initiatives. You’d think the very least governments would do in return is offer a raft of tax incentives to help raise the value of bling!~

  147. Daniel – There is no way a 1% increase can break them after having come off the lowest cash rate in 50 years – Unless they and and their bank were very stupid … IMO? (What’s 1% – $3,670 pa on the average new loan – Just means dad takes a cut lunch and ma washes out some linen squares rather than uses Snugglers … In the MOST traumatic of imaginable Oz eventualities! :) )

  148. Nah, I think Just IN has got you there, Ned. That’s why US, UK and Canadian interest rates are close to zero… and ours are _infinitely_ higher. Look at what happened when interest rates in Australia hit 17.5%. The island sank in to the sea… no-one survived the t$unami. We never recovered. Property never recovered.

    As I proposed in an earlier comment, given the choice of providing goldbugs with mega-yachts and McMansions; or helping Aussies keep their homes and the construction industry alive, Labor will reward those supportive blingers of bad tidings. They’re gambling on it, Ned… . ;)

  149. Here’s a question for you BIKER Pete.

    What are interest rates?

  150. G’day Justin – Yes, Rudd and the RBA propped things up a bit – And house prices went up by 11.3% (rather than the more usual 8.6%) – Maybe they’ll go up a bit less in the next coupla years as a result??? Or even down a bit. I don’t know – But the immediate risks of a true 40 or 50% crash seem very low? IMO.

  151. Interest rates – That is an issue that is central to the entire debate – Rates are being pushed lower – So “high risk” investors in stocks are happy to buy when P/Es are maybe 20:1 … Hmmm … 5% income – That’s OK. Whereas “lower risk” PIs say … Hmmm … 3.75% income – That’s OK.

  152. Are you serious, Just IN? You don’t know what interest rates are? I knew you were a bright lad, but I think le sucre is interfering with your ADHD, son. Wiki it… . :)

  153. Daniel he says he “Didn’t have to stand atop the tall mountain waiting for the C-130 Hercules to crash”
    He didn’t have to do that because he was able to buy at a fair price
    We have no other option really than to do that, we could sign up to be a lifelong debt slave, but all we would be doing is making the situation worse and helping the people I (maybe we) despise the most.
    He tries to install guilt into us for the situation and mess that he and his likes have created

    Why should you or I have to pay over double in relative terms for something he payed for less than half the price for?

    You know why the Emu and Kangaroo are on our coat of arms for??
    They are supposed to symbolise that we as a nation can only go one way and that’s FORWARD (as the emu and kangaroo can not walk backwards)
    but unfortunately we are not going forward as a country we are going BACKWARDS because we (well not we but the old) are making things harder for us, if we are meant to be going FORWARD things should be getting better for us not worse,
    maybe we need to change our coast of arms hay!!!

  154. Yes, it’s been that way for the last 55 years Steve – But at least you now know it (which I SURELY didn’t!) So you get the option of figuring out what you want to do about it at a young enough age to just maybe make a difference? The internet truly is a wonderful thing!

  155. Steve, I fully believe Daniel should rent. I also believe you should pay board. Scared of a property crash? Stay well away from property! Dan says watch out for banks, too. And uhhh… you should retire now. (What’s a coast of arms?! Is it like a headland; like the bottom of the harbour; or more like the foot of the mountain? Are you shore a coast of arms even exists? Hey?! Loved the Kangaroo Edward analogy, though… .)

  156. Looking forward to chatting to you one day over a quiet glass of sherbert away from extraneous noise Biker – Cheers!

  157. Do you have a Ned Kelly story Steve? I love those ones where Ned kills all the troopers and rides off into the sunset Victarious, on his lawnmower. Don’t think that had reverse, either. Speaks volumes about the current State of Affairs (Vic, I believe) and the south QLD property market.

  158. Ned when someone on an ABOVE average wage can not afford a BELOW average property what do you think its time for?
    A property correction maybe???

    We are not as special as you would like to think we are
    Have you asked any American just before their crash if they thought it could?

    Ours are in a much bigger bubble than theirs ever was

  159. Same here, Ned. I’m about to start digging soakwells again… nine of them. Bit of retic, landscaping and sealing/painting to do, as well. Have to work mornings and evenings when it’s cooler… but at least I can hit the beach midday and catch a few waves.

    Missus thinks July might be a good month to pick up the new Multistrada in Cairns. Less stamp duty over your way, I think(?)

  160. July is good … No chalet, but airport pickup and a double bedroom to call your own for as long as interested! :)

  161. Steve said: “Ned when someone on an ABOVE average wage can not afford a BELOW average property what do you think its time for?
    A property correction maybe???”

    I do not know. But I do strongly suspect that the longer you keep calling the property market incorrectly, the tougher it is going to become for you. Unless you (like Daniel) decide that owning a house isn’t that big a deal. And that is in a “good” country like ours where you continue to have ALL sorts of options and choices.

  162. Some big picture clarification: When I say “Rates are being pushed lower”, I’m talking within long term trends.

  163. Built five of ours when the rates were 9.45%, Ned. Paying 5.7% at present. We’d budgeted for a rise to 10%. As history shows, rates actually fell, giving us a windfall.

  164. Yes Biker, my hunch is that we have moved into a lower interest rate, higher inflation environment??? Anyone who’s ever read any economics theory will probably say I’m INSANE? – But that’s what seems to be happening. And it wasn’t that long ago the academics reckoned stagflation was a theoretical impossibility. I’ll take the practice over the theory I think.

  165. Completely agree with your hunch, Ned.

    We’re intrigued by food prices. Some items are 30% cheaper here than in Canada. The staples, including bread, cheese, etc are all slightly cheaper. New cars are simply crazy prices compared to Canada (US proximity I guess) and everything there is not only no deposit, but cashback incentives of $3K or more… and 0% finance.

    Saw Avatar yesterday. Twice the cost of Canadian admission… . No wonder it’s grossing billions. Aussies are paying _double_!!

    We toyed with the idea of buying a place on Vancouver Island. All would have been a breeze… 30% down (for furriners!) and 2.75% fixed for five years(!) but a comparison with WA showed us well ahead here, despite paying over twice the interest rate. This state is humming even louder than it was six months ago. They’re talking major skills shortages within two months… . Wages will rise of course!~

    Between jetlag and culture shock, I’m deflated one minute, inflated the next. Where’s the caffeine??!

  166. Ned – So you think a 1% rise won’t do much. What about 5%? How about 18% like we had only a couple of decades ago? I think you underestimate how many people are living on the edge, with no mum and dad to support them.

    Pete – You have an amazing imagination! I chuckled out loud at the hercules metaphor. When did the conversation become goldbugs vs the world? This is certainly not where I am coming from.

    Steve – As per my first post, I no longer fret about it. Perhaps if I was a home owner now, I would be singing a different tune. However, as you say, this still does not address the concept of a “fair price” or what is really going on in the market place.

    Regarding the idea that the government will pull out all stops to halt a property crash/correction.

    Isn’t this, dare I say it, epically naive? I mean if the day comes, I don’t think there’s much they CAN do. If something could be done, why didn’t the governments in the UK and USA (and all the others) do something?

    What I want to know is, what is so special about Australia that it should persist with such high house prices in relation to the average wage?

    Add in the threat of high interest rates, unemployment, a resource boom that will probably not last forever and most importantly, the mind boggling private debt burden Australia currently “enjoys” … What do you have?

    I don’t have a crystal ball, but how can this information be so easily disregarded?

  167. Daniel’s right, Ned. It’s all gonna crash. The facts are irrefutable:

    * 18% will kill property stone dead;

    * Australia is exactly the same as the US and the UK;

    * Our unemployment rate is twice that of UK and the US;

    * Aussie wages are falling, as they always have;

    * The resources boom is about to end;

    * The Aussie government won’t save Aussie homes or the 3rd largest Aussie industry
    (after mining and agriculture.)

    * From this day forward, goldbugs and property bears will embrace and live in harmony.
    Uhhh, not you Just IN. You stay over there where I can see you… .

    I figure that’s it, mate. We’re doomed. Funny thing, I think I’ve read all this before… Keen… Steven Keen…
    it’s all coming back to me, now. Only thing different was Keen predicted interest rates of zero percent for Oz. Funny, that… . Eighteen percent… hmmm… .

    But I’m definitely spooked. No more playing Monopoly for me, Ned. I’m selling up. Think I’ll change my name… hide out in the Currencies section. Did you hear the prediction that the OzBuck will reach US$1.10 by June… or that the UK, moving from Sterling by July, will make it mandatory to refer to ‘spending a penny’ as euronation?

  168. Daniel, you’ve given me a great idea with your ‘fair price’ idea. I’ll try repeatedly shouting “Hey, what about a FAIR PRICE?” at the next home auction I attend. Should be good for a 50% discount.

    If it _doesn’t_ work, I’ll show them that long list of reasons why the property will only be worth half next year.
    Gotta work, right?!

    I enjoyed that brief holiday from stomping around the arena, pawing the ground and snorting out of my bovine nostrils. Thanks to your foolproof ploy, I can now face the toreaDRAs again…. . :)

  169. As I said before Pete – business as usual right?

  170. Property markets (as do other markets) always appear to be at their most appealing just before they crash.

  171. Jeez, just when i was thinking silver looked pretty appealing!

  172. Regarding the concept ‘When the average income earner can’t afford the average house, then house prices must go down.’ :
    It has some sort of fundamental attraction to it I guess? But I certainly haven’t been able to bring myself to say Yep, it has to work that way – No question!
    A thought that has occurred to me in relation to it though, is that it doesn’t seem all that dis-similar to reasoning ‘When the average 65 yo can’t afford a reasonable retirement, then the price of stuff that retirees want must go down.’

    The other thought that has occurred to me is that there’s some bloggers on this site who are are in some sort of grief/loss mode? (And not just in relation to house prices.)
    My recollection is that it involves stages like denial, anger, depression and (maybe) acceptance. And in that regard when Daniel says he no longer frets about “it”, he is at least in a pretty reasonable place regarding his own head by the sounds.

    Not much value asking me to speculate on what could happen if interest rates go up by x, y or z – I imagine the RBA has put a lot of work into trying to determine just that – And they’ll be the ones setting the rates.

    What’s special about Oz? Good question. As it would seem that something could well be. But I’m all speculated out in that regard. (Albeit more from other blogs than this one though.)

    As to “business as usual” – Well to the extent that it is for Asia then it probably is for Oz as well.

    Think I’ll have some lunch and an afternoon nap! :)

  173. ‘When the average income earner can’t afford the average house, then house prices must go down.’

    Well, let’s see. We visited a few countries where that definitely wasn’t true. Foreign investment in residential markets had blown the lid right off the Mexican Riviera, for example. There weren’t too many Mexicans (average wage $8K per year) who could afford to buy $300K-$450K homes or apartments… yet Mexicans were the majority of home owners.

    And you only have to look at the two largest cities in BC, Canada, to see that the ‘average income earner’ simply cannot afford to buy the average home in either… .

    So while the statement may be true for some countries (eg., the UK and US) it’s not true for others.

    Here are two further comments, both _personal_ opinions:

    1.) Australia is a very, very special place.

    2.) It may well be that many tenants actually prefer to rent, than either: a.) move to another area in which they _can_ afford to buy, as we did, decades ago; or b.) lock themselves into a 30-year debt in an area in which they want to reside.

    Time and again, we read of respondents who tells us they have large quantities of cash… but elect not to buy.
    Who are we to tell these folk they’re wrong?

    Ultimately most here are gamblers. One group gambles that it’s ‘business as usual’… that their investment(s) will continue to perform. Another group gambles that there will be a property crash and they’ll pick up a bargain or two. (I’m in _both_ groups… and I suspect several of us are… . :) )

    Jeez, is it lunchtime, Ned?!

  174. It would be great if DRA opened a forum, this has to be the longest thread ever!

    Pete for some reason I get images of one of those old fashioned side show games – the one where you hit the target the fellow gets a ducking in a tank of water – with you as the duckee :) People can’t seem to resist having a go at knocking you off the perch. What do you think a good metaphor for the balls are? High interest rates (the bigger the rate the bigger the ball), inflation, unemployment rate? Needless to say the water tank is 50% full representing the drop in property prices.

  175. HaHa… Enjoyed the analogy, Don. I think what’s happening is:

    * I’m a property bull in a cageful of property bears.

    * I knew this would be the case.

    * I came here with no illusions that I’d convert herds of bears… or even a single bear.

    * I am clearly an embarrassment to the status quo, since rating privileges have been blocked.

    * Other respondents advise similar censorship.

    * I’ve read some outstanding arguments from the bears explaining why property will crash.

    * I’ve also read quite a lot of juvenile crap… and have, once or twice, responded in kind.

    * If I’m getting dunked… that is literally… cool.

    A forum would most certainly take some heat off DRA. After six months in the NH, I’m enjoying the warmth here! :) Please let me know how the forum goes, Don.

  176. It seems that some here believe that property won’t crash in the future for no other reason that it is not crashing as we speak.
    The same logic held sway in the US, UK, Spain etc right up until the moment it did.
    A few simple calculations will confirm that Australian property is overpriced. You can either accept what the calculations are indicating or learn by trial and error.
    This is one of the mechanisms that helps promote the movement of wealth from the naive to the intelligent.

  177. I’m a tenant . renter, landlord servient blah blab . etc……… I’m thrilled that at last I’m in a situation where my ex wives see nothing that I have that they want….. and when I want something done to the place I call home I call the landlord instead of going to the local DIY and then subsequently calling the ” tradesman’

    I reguard that as something immeasurable called ” free time ” and may represent several sundays

    Owning property is wonderful means of getting rid of a woman called a wife – tell her she can have the house and she’ll be gone in quicker time than it takes a crow to build a nest up your ass.

    There seems to be a lot of people here talking about things of which they know nothing about.

    One correspondant made that observation that Australia is different. What on earth does that mean?

    We live in a zone where “universals ” don’t apply?? Or does it mean that Holland has plenty of land to spare and Australia doesn’t. Yes I know – who wants to live in the Simpson Desert?

    I’m staggered that property prices here can rival that of Monaco.

    Particularly in Perth – if there was ever a place worth avoiding , a place of no infrastructure , no soul , devoid of ……of……..well I suppose it does have a good crayfish industry and up north theres a lot of iron ore which is fantastic if you like iron ore. I can take it or leave it but the last time I looked I was happy to leave it

    It does however offer an over abundance of overpriced properties – and overpriced restaurants and ridiculously priced average to bad coffee.

    There’s plenty of sun though, nice but badly serviced and overpriced beachsides and a river full of jellyfish that sting like buggery.

    In Perths defence they say its good for families – even though it has the highest crime rate in the country – its all those people who hear about the good life, cant find it but want to live it.

    Amazing – the biggest and most unpopulated state on the planet and we’re told that prices are high because of a land shortage within it.

    Oh yeah…..and immigration ,refugees etc – refugees with no money push up the price of property for Australians who do have money……….ummmmm … how does that work

    If thats how it works then why in Holland ( about half the size of Tasmania ) with higher immigration and more refugees than Australia is property and coffeee cheaper

  178. …………and with a comparable population but a better football team and speed skaters.When are you aussies from Victoria , SA and WA gonna realise that AFL is a worldwide non event ?

    You had your chance at the “56 Olympics when it was a demonstration sport. Most demonstration sports go on to be Olympic sports

    I divert…………..

    Get some sense and buy gold/silver/platinum etc and hide it from ex wives and girlfriends

  179. Steve you mention going forward. Good for Kangaroos & Emus but not for prices. Tell me an animal other than an emu that is more stupid than a kangaroo. Maybe someone that will sell you that house for half price.
    It is simply supply & demand. There may well be a crash in property prices on the way. But not everything that goes up must come down.
    Nothing wrong with renting but if you want to own don’t leave it forever.

  180. Gregory: “…I’m in a situation where my ex wives see nothing that I have that they want….”

    Why Greg, reading your post, full of light and happiness, I simply can’t imagine how that could be so.
    Swan River jellyfish stung you? Amazing… never heard of this in over sixty years! Ex-wives and GFs stung you?
    Mate, that’s even more hard to believe… . ;)

  181. Jeez Biker, where’s ya empathy for a brother in pain? If youse were part of the sisterhood, you’d be saying The PIG … I bet he put that jellyfish there on purpose! You should take him for every penny he’s got!!! :)

    Hmmm … While lots of ex-wives do turn out to be excellent little “housekeepers”, always remember that a Binding Financial Agreement is (potentially) a “boy’s best friend”. Plus know what Child Support is. And Spousal Maintenance – Leastways if you reckon there’s a chance she’ll ever be able to convince a judge she’s even more decrepit and useless than you are. :) :) :)

    The rule of the 5 P’s – Prior preparation prevents piss poor performance. (Although in these somewhat uncertain times I’d be tempted to add an extra P for possibly.)

    As to “the” housing “crash” – Got to admit that Kev and the banks kicked my moderately bearish butt! 2011 as Bertie says? Or 2012? Or 2016? Or 2050??? Hard to say really. When do people reckon the boomers might get sick of turning up at work? And Asia will crash in a screaming heap? And the skilled migrants will stop coming? And government will not do anything to protect house prices?

    My bearish arguments are all starting to sound a bit feeble in fact. Whilst I still personally warm to the one that says They’re too dear and I don’t want to pay!, it doesn’t seem to be getting me a lot of empathy either.

  182. Ned, that’s why we: 1.) moved to a new investment location, when the area in which we have our first three ‘recent’ houses became too rich for our blood; and 2.) really started building, in the new area, rather than just buying established homes. Yes, it’s more work, particularly physically… and we’re learning virtually every day… but it has proven to be what’s best for _us,_ at this time… .

    This website needs a happy optimist or two. Don’t need empathy, sympathy, symphonies or the like. Whatever goes wrong in my life is _my fault_ and no-one else’s. If I haven’t maximised my options, increased my choices and developed flexibility, it’s my own damned fault… . ;)

  183. Let’s just see how property prices respond to rising rates and rates sure have a long way to go.

  184. Now that I think about it, you’re probably right Bargeass. Sorry for all the trouble, I just like the attention.

  185. Yeh, I tried that calc too Bargeass – An average $367k per new mortgage; And an average household disposable income of $85k pa (thanks DR for the latter figure):

    So at 6% pa over 25 yrs I get repayments of $28,375 pa. Add a bit for council rates and insurance and some basic R&M you get $33k maybe? Which still leaves $52k pa after tax to live on. Bump the rate to 8% pa (that’s what you get on 5 years fixed) and you end up with $46k pa to live on. Which is getting a bit leaner but still doesn’t quite sound like bread and dripping material to me?

    And presumably those incomes will go up a bit over the next 5 years. So unless you know something about what’s going to happen with interest rates over the next 5 years that the banks don’t, then I just can’t see the average recent home buyer hitting the wall in relation to interest rates anytime soon at all?

    But thanks for trying to make me feel better about the prospect of being able to score a cheapy house off a struggling FHB sometime soon anyway! :)

  186. I can setup a forum. How many people are interested? I’ll set it up now and let you know the address tonight.

    First Home Buyer
    January 19, 2010
  187. Changes to environmental laws are going to have a big impact on property prices IMO. In Australia, I wouldn’t be surprised if govts. lock away rural and regional real estate to meet some kind of carbon offset requirement or by some other feeble excuse, forcing cities to grow upwards instead of outwards – so the properties out there with houses already on them will rise in price. Cities without water face a crisis, though, and whilst living in them will be necessary (due to regional areas being locked away), life in them will get worse. And because of privatization, infrastructure projects are sabotaged into the next 30 years.

  188. I’ve actually said this before, and some agree, that real estate in Australia is comprised of thousands of different markets, some of which are probably extremely over-valued, and some are probably fairly valued.

    It’s a personal perspective, and if enough people want to live in a particular location, it’s going to be more expensive than other locations.

    There is a nice suburb in Brisbane called Grange (no I don’t live there), where today on, you’ll find 10 houses for sale, with 8 of them under contract.

    It obviously has appeal to a broad range of people to have a quick turnover of houses like this, regardless of the current economic environment.

    Even if interest rates continue to go up, surely this type of location would fare better than other areas, so those who talk about an across the board drop of whatever percentage just don’t get it, IMO.

    Most houses are purchased with a higher percentage of emotion than common sense. I’ve just come back from a week away in Smiths Lake in NSW, and properties there on or near the lake look attractively priced to me, when compared to what I can buy in Brisbane within the 10km circle for the same money or less money. Doesn’t mean I’m moving there of course – could never be a cockroach.

    However, if you don’t participate in the market, you sure won’t build any equity apart from saving. Watching from the sidelines is nice and safe.

    It’s a personal decision.

  189. The Rudd Wallys couldn’t even get the first home buyers grant right, how hard is it? Howard had it just right at $7000, a little bit of help and not too much distortion of the market. I’m guessing the Wallys had the Whitlam how to do things handbook out. Now if they cant get a home buyers grant right, what hope is there for them? Things may appear not too bad, that is due to Howard’s legacy but it is being undone quick. During the Rudd Wallys next term things will come undone quick smart and they will be very lucky indeed to win the one after.

  190. just like to point out that rising rates is usually symptomatic of an excess of money/demand in the economy and have increased lockstep with property prices over the last couple of booms. (rising rates to fund government deficits is a different kettle of fish but i doubt australia is quite in that position just yet (availability of funding options at present)).

    our debt to income ratios are a worry and our continued survival on the highly leveraged precipice hinges on the continuation of chinese expansion but i think a big difference between our and us’s situation is the us’s continued need to blow out their deficits into the foreseeable future while australia’s need to continue down the deficit path is far less certain.

    im a very small time property investor and have a very limited experience over history but i get the feeling those in power quietly enjoy a rising property market and will not stand in the way of another boom by tackling the supply side problems. property prices like everything else is dependant as much on expectations of the future as current conditions and im sure continued increases in the money supply, expected increasing rents and further supply shortages are firmly supporting our prices.

    having said that im gladly selling a half share house i have with my brother to simplify my current situation and pay a bit down on one of my other (2) places. Our dependance on china and levels of debt make me nervous and i dont want to wait for ever to enjoy some of the money made working hard renovating, one day all that equity just may not be there.

  191. I think we need to keep the political angle in view. There is no way in this world that the government in power is going to let a huge housing correction manifest itself unless it can help it. If the conditions come to pass that result in a 40-50% drop across the board the government of the day should just pack up its boxes and get ready to move out of office.

    If interest rates start rising sharply they have shown that they will support housing either through the FHG or alternatively via taxation law if they get desperate.

    So based on these assertions there are two ways this housing correction could come to pass – if the national unemployment level shoots through the roof or if interest rates are forced above the point at which the government can juice the market or both.

    Unemployment is looking remarkably good at the moment so interest rates offer about the only way right now. As far as they go, the reserve bank will keep them rising steadily but not too much to cause a massive fall in housing as that will end up smashing the Labor party in the polls. Yes, I know the reserve bank is supposed to be independant but that doesn’t mean they are also stupid. Just my 20 cents.

  192. Matto said: “… those in power quietly enjoy a rising property market …”
    They don’t collect capital gains tax on properties that go down in value. Or GST from all the sales of materials and services used on building new ones if it winds back. Or tax on the banks’ profits if people reduce their borrowing … etc, etc, etc.

    Anyone who thinks government has anything other than the strongest of vested interests in house prices going up, simply hasn’t given it much thought. IMO?

  193. Ned – i was referring to more on a personal level for councilors, politicians, beurocrats, etc (perhaps even down to council planning officials). i see affordablility & supply getting a lot of lip service but the incentives to exaserbate the current situation, if anything, are just too great.

  194. Agree 100% Matto – What they say as pollies is one thing; But knowing what they’ll do as pragmatists who understand that the whole system hinges on growth and increasing asset prices and inflation is more useful info.

  195. thats the words i was after, the personal profits available to those who make the decisions will somehow miraculously shade the effectiveness of those decisions. its the outside influnces that need to be considered carefully.

    home time!

  196. Dan probably got it right a while back when he suggested there are too many people in the world – Anything we do while that problem is busy coming to the fore and then resolving itself is just a bit of fun in between times.

  197. Ned S where did you get the figure for average household disposable income of $85k as this seems quite high even for a 2 income household.
    Considering the average wage is @$60k or @ $40k after taxes.
    Even if your figure is correct I’d suggest you look at the median figure as average figures can easily be inflated by a small number of extremes.
    I also think your 8% maximum for interest rates is a bit of a best case scenario considering the socialists hold government. A look at their track record would suggest a risk of much higher rates.

  198. G’day Bargeass – The $85k figure was stated in an email I received from DR in an article by Dr Alex Cowie dated 15 Jan 2010. Which said (amongst other things):

    “Even in a world where property prices always go up, this is a huge burden on society as a whole. The average household income (net of tax) is around $85,000 a year. Using all of this money it would take about twenty months to pay off all the average household debt.”

  199. “My” 8% 5 year figure isn’t my figure at all Bargeass – It is the banks. And can be verified here:

    Which pretty much accords with my “feel”(???) that while we are entering a cycle where rates increase, long term they are still going down – Which we could argue about all day in the absence of specifics?

    But is why I’m happy enough to trust the banks guestimates in the absence of said specifics known to me … As the banks do have skin in the game. And also know way more than me. And things seem to have stabilised a bit?

    But Yeh, only time will REALLY tell!

    It’s called “risk” I gather? And that’s a good thing to hedge against I also gather??? :)

  200. Anti discrimination laws??? So i can’t say its the FIRB rules not being enforced allowing in chinese and poms to buy the houses and deprive aussies of their birthright?

  201. Every now and then, when prejudices can be stood aside, Denninger gets lucid :

    “The Truth is that we now require about $5 of debt to generate $1 of GDP.”

    While $2 of that $5 has gone into carry his point is right. Australia we mainline’s off USD bank credit creationism and carry, our access to Euro and Asian savings has flatlined, albeit less so than NZ. So even though the “helicopter Ben” actually worked short term down here and gave us more than an even money multiplier on expanded sovereign debt, it still gets trumped by the force of the burst asset inflation expectation.

    Even Adam Carr can see that 2010 housing lending is not doing what it should and even he understands what that means to already flat to negative non housing lending. In the latter you see the reverse of the debt multiplier asset inflating led service economy’s work on the way up ….. poor Adam … the run of rent is almost done, and we are left looking at the clown who finally looked into the mirror and saw the sad painted face.

    And our local misfortunes run exponentially if Denninger’s forces get out of the box, without our big nasty mate’s creationism we are the junky gone cold turkey. Any wonder Ralph Norris heads to the deficit capital of the world to get news on his short term funding prospects. He hit some up in the past few days and even got some 10’s (but he is paying almost as much over libor as a kiwi coop borrowing in those nasty NZDs).

  202. Unless you have an inheritance or are lucky enough to have a very high paying line of work, owning your own home is not an option for you. Being forced into low paying work isn’t helping matters and leads to quite a depressing outlook for younger people.


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