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 www.bullionvault.com . 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
|
Currency |
Gold's Decade Gain (%) |
| US Dollar |
292 |
| Euro |
181 |
| Yen |
249 |
| Chinese Yuan |
218 |
| UK Pound |
298 |
| Brazilian Real |
273 |
| South African Rand |
365 |
| Canadian Dollar |
179 |
| Indian Rupee |
313 |
| Mexican Peso |
434 |
| Russian Rouble |
310 |
| Australian Dollar |
182 |
| South Korean Won |
299 |
Source: www.buillionvault.com
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
P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.
Related Articles:
- Australian Housing Market Getting Stronger Despite Fear of Inflation
- Stock Market Should Never Have Been Rallying in First Place
- S&P/ASX 200 Clears Resistance Line
- Australian Property Market is “Recovering”
- The housing bubble caused big increases in nominal GDP
About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
Comment by Unpopular Truth on 5 January 2010:
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.
Comment by Greg Atkinson on 5 January 2010:
UT..you mean net income after tax and basic expenses?
Comment by Ned S on 5 January 2010:
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?
Comment by Greg Atkinson on 6 January 2010:
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: http://www.shareswatch.com.au/blog/stockmarket/farewell-2009-goodbye-gfc-and-a-happy-new-year-to-all/
Comment by Pete on 6 January 2010:
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... !
Comment by Greg Atkinson on 6 January 2010:
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 do..it 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)
Comment by Mark on 6 January 2010:
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.
Comment by Greg Atkinson on 6 January 2010:
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: http://www.nni.nikkei.co.jp/e/fr/tnks/Nni20100106DA6J1061.htm
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.
Comment by Pete on 6 January 2010:
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...!
Comment by Nirvan on 6 January 2010:
..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
http://www.smartcompany.com.au/export/20090824-has-australia-become-the-butt-of-asias-jokes-gottliebsen.html
Comment by wasabu on 6 January 2010:
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.
Comment by Greg Atkinson on 6 January 2010:
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!!
Comment by Ned S on 6 January 2010:
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!
Comment by Ned S on 6 January 2010:
Or an English teacher.
Comment by Bargeass on 6 January 2010:
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.
Comment by Greg Atkinson on 6 January 2010:
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)
Comment by Pete on 7 January 2010:
"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.
Comment by Unpopular Truth on 7 January 2010:
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.
Comment by Greg Atkinson on 7 January 2010:
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?
Comment by Toto on 7 January 2010:
Unpopular Truth, maybe you should look at how the Chinese find the cure for malaria.
http://news.bbc.co.uk/2/hi/health/194160.stm
Comment by Unpopular Truth on 7 January 2010:
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.
Comment by Greg Atkinson on 7 January 2010:
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.
Comment by Chris on 7 January 2010:
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.
Comment by prozak on 7 January 2010:
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!
Comment by Ned S on 7 January 2010:
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?
Comment by Nirvan on 7 January 2010:
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.
http://www.chinadaily.com.cn/bizchina/2009-12/28/content_9235505.htm
Comment by Ned S on 7 January 2010:
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???)
Comment by Ned S on 7 January 2010:
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 ...
Comment by Pete on 8 January 2010:
"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.
Comment by wasabu on 8 January 2010:
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!
Comment by Pete on 8 January 2010:
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.
Comment by Ned S on 8 January 2010:
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?
Comment by Pete on 8 January 2010:
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'.
Comment by Ned S on 8 January 2010:
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!
http://www.smh.com.au/business/property/parents-property-help-could-harm-20100108-lxml.html
Comment by Pete on 8 January 2010:
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... .
Comment by Ned S on 8 January 2010:
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!
Comment by Steve on 8 January 2010:
You would believe Pigs fly Pete
Comment by Pete on 9 January 2010:
Swine flu...
Comment by Ned S on 9 January 2010:
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?
Comment by Bargeass on 10 January 2010:
The bigger and longer the boom the bigger and longer the bust.
Comment by Ned S on 10 January 2010:
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?
Comment by Steve on 10 January 2010:
WOOW Ned I really am speechless after that comment I really am!!!
Comment by Ned S on 10 January 2010:
Let me know when you recover your powers of speech then Steve ...
Comment by Pete on 10 January 2010:
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!
Comment by Ned S on 10 January 2010:
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?
Comment by Pete on 10 January 2010:
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!!"
Comment by Steve on 10 January 2010:
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.
Comment by Steve on 10 January 2010:
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
Comment by Ned S on 10 January 2010:
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!
Comment by Ned S on 10 January 2010:
It was just a thought Steve - If you you don't like it (as is your right), come up with something way better.
Comment by Steve on 10 January 2010:
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.
Comment by Ned S on 10 January 2010:
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?
Comment by Steve on 10 January 2010:
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???
Comment by Pete on 10 January 2010:
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... .
Comment by Steve on 10 January 2010:
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.
Comment by Steve on 10 January 2010:
Your both too easy,
NED = FLYWEIGHT
PETE = FEATHERWEIGHT
Comment by Pete on 10 January 2010:
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... ?
Comment by Ned S on 10 January 2010:
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.
Comment by Steve on 10 January 2010:
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???
Comment by Steve on 10 January 2010:
Yeh thanks for that too Ned
Comment by Ned S on 10 January 2010:
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!
Comment by Pete on 11 January 2010:
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?
Comment by Bertie on 11 January 2010:
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.
Comment by Investor on 11 January 2010:
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.
Comment by Greg Atkinson on 11 January 2010:
Bertie..diet 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.
Comment by Steve on 11 January 2010:
HAHAHA
Once again Pete MAKING ASSUMPTIONS THAT ARE NOT TRUE,
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.
Comment by Steve on 11 January 2010:
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?
Comment by Ned S on 11 January 2010:
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!
Comment by Steve on 11 January 2010:
Once again are you going to answer the question?
Comment by Don on 11 January 2010:
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?
Comment by Ned S on 11 January 2010:
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.
Comment by Steve on 11 January 2010:
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???
Comment by Steve on 11 January 2010:
Yes it is there* before Pete or Ned remind me
Comment by Ned S on 11 January 2010:
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:
http://www.shareswatch.com.au/blog/economy/ken-henry-and-his-tax-review-should-we-be-worried/
Doubt Greg will mind too much???
Comment by Greg Atkinson on 11 January 2010:
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)
Comment by Don on 11 January 2010:
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.
Comment by Steve on 11 January 2010:
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
Comment by Pete on 11 January 2010:
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.
Comment by Greg Atkinson on 11 January 2010:
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?
Comment by Pete on 11 January 2010:
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.... !
Comment by Don on 12 January 2010:
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:
http://www.timesonline.co.uk/tol/news/world/asia/article6940482.ece
Sweet lord talk about ripping people's hearts out
Comment by Justin on 12 January 2010:
Or, you can just buy gold.
Comment by Pete on 12 January 2010:
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... .
Comment by Don on 12 January 2010:
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 
Comment by Pete on 12 January 2010:
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?!
Comment by Justin on 12 January 2010:
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.
Comment by Pete on 12 January 2010:
Ahh, but my CGT will pay your pension, Justin.
Comment by Justin on 12 January 2010:
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.
Comment by Don on 12 January 2010:
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.
Comment by Don on 12 January 2010:
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
Comment by Justin on 12 January 2010:
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.
Comment by Justin on 12 January 2010:
Ask yourself Don, are you one of those?
Comment by Pete on 12 January 2010:
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?!~
Comment by Pete on 12 January 2010:
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!"
Comment by Justin on 12 January 2010:
I'm bored, you're boring BIKER PETE.
Comment by Don on 12 January 2010:
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."
http://www.city-journal.org/2009/19_3_otbie-inflation.html
Comment by TiredOfCrystalBallGazers on 12 January 2010:
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.
Comment by Bertie on 12 January 2010:
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.....
Comment by Justin on 12 January 2010:
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........
Comment by Steve on 12 January 2010:
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
Hardly AFFORDABLE
As the saying goes "When an average man can't afford an average house in an average area, something has to give"
Comment by TiredOfCrystalBallGazers on 12 January 2010:
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.
Comment by Greg Atkinson on 12 January 2010:
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!
Comment by Steve on 12 January 2010:
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
Comment by Pete on 12 January 2010:
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... .
Comment by Justin on 12 January 2010:
First, your name's BIKER Pete.
Second TiredOfCrystalBallGazers, why are you here now? & why will you be back in 6 months?
Comment by Pete on 13 January 2010:
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?!!!
Comment by Justin on 13 January 2010:
No, your name is BIKER Pete, it always has been.
Comment by Pete on 13 January 2010:
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... .
Comment by John on 13 January 2010:
You should always wrap that rascal, Justin. John 9:23
Comment by First Home Buyer on 13 January 2010:
I love you guys. Don't stop bickering. Just make sure to include the facts.
Biker Pete, Ned, Greg et al: Here's an awesome forum I bumped into when I was searching up home buying and building: http://www.somersoft.com/forums/
Also read somewhere Ipswich is on the up or something: Whaddya guys think?
Where's Pete the bubblepedia guy?
Comment by mike on 13 January 2010:
...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...
Comment by Pete on 13 January 2010:
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'.
Comment by Don on 13 January 2010:
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.
Comment by Pete on 13 January 2010:
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... .
Comment by Justin on 13 January 2010:
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.
Comment by Chief Squirrel on 13 January 2010:
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!?
http://www.theaustralian.com.au/business/property/rebound-tipped-for-stagnant-rents/story-e6frg9gx-1225818589224
Comment by TiredOfCrystalBallGazers on 13 January 2010:
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).
Comment by Don on 13 January 2010:
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
Comment by Ned S on 13 January 2010:
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)
Speculation:
* 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.
Comment by Edward on 13 January 2010:
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)
Comment by Bargeass on 13 January 2010:
Just wait until rates get back up to realistic levels.
Unaffordability up and prices down.
Comment by Pete on 13 January 2010:
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.
Comment by Daniel on 13 January 2010:
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" ...
Comment by Sambo on 13 January 2010:
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.
Comment by Pete on 14 January 2010:
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... .
Comment by Steve on 14 January 2010:
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???
Comment by Pete on 14 January 2010:
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?
Comment by Don on 14 January 2010:
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.
Comment by Pete on 14 January 2010:
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..... !
Comment by Don on 14 January 2010:
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.....
Comment by Pete on 14 January 2010:
Ha,Ha.... !! Laughed meself legless, Don... .
Comment by Daniel on 14 January 2010:
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!
Comment by Don on 14 January 2010:
5 stars Daniel, your post is what DR is all about
Comment by Daniel on 14 January 2010:
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?
Comment by Bargeass on 14 January 2010:
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.
Comment by Pete on 14 January 2010:
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.... .
Comment by Pete on 14 January 2010:
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.
Comment by Daniel on 14 January 2010:
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...
Comment by Ned S on 14 January 2010:
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?
Comment by Ned S on 14 January 2010:
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!"
Comment by Pete on 14 January 2010:
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!
Comment by Bargeass on 14 January 2010:
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.
Comment by Daniel on 14 January 2010:
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?
Pete,
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!
Comment by Ned S on 14 January 2010:
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.
Comment by Justin on 14 January 2010:
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 wwww.rba.gov.au, there you will find 'The Australian Money Market in a Global Crisis'.