Flip Flopping in the Housing Market

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Flip ’em on the way up…
Flop ’em on the way down…

Subsidize ’em on the way up…
Subsidize the subsidizer on the way down…

Bloomberg News:

Banks Face Short-Sale Fraud as Home ‘Flopping’ Rises

June 10 (Bloomberg) – Two Connecticut real estate agents found a way to profit in the U.S. housing bust: Buy low, sell fast. Their tactic was also illegal.

Sergio Natera and Anna McElaney are scheduled to be sentenced in Hartford’s federal court in August after pleading guilty to fraud. Their crime involved persuading lenders to approve the sale of homes for less than the balance owed – known as a short sale – without disclosing that there were better offers. They then flipped the houses for a profit.

There is always a way to make money. When prices were rising, unscrupulous speculators made money by pretending houses were worth more than they really were. Now they make money by pretending they’re worth less than they really are.

Trouble is, no one knows exactly what things are worth. They know even less what they’ll be worth tomorrow or the next day.

The theories about economics and markets developed in the last 100 years are almost all nonsense. Markets are not perfect. They do not reflect the actual value of things. There’s no way of knowing what the actual value is. Instead, markets are always discovering value – in fits and starts – imperfectly. They reflect reality and fantasy…the future and the past…math and muddle.

When the feds pushed down interest rates following the ’01 mini recession, homeowners realized that they could own more home with the same monthly payments. Houses suddenly became more valuable. This pushed up prices and led homeowners to conclude that houses were a good investment as well as a good place to hang your hat. And because the value of their collateral had increased, it enticed the mortgage industry to lend more aggressively…and ultimately, recklessly.

Prices moved up even more. Happy days were here.

And then, the market discovered that houses weren’t really worth so much after all. Because the mortgage industry had canoodled with Wall Street and Washington to inflate house prices far beyond what people could afford to pay. The average homeowner could no longer come close to buying the average house. Fannie and Freddie, for example, backed every crackerjack mortgage scheme that came along. And then, wouldn’t you know it, people had mortgage payments they couldn’t meet.

Prices fell. Bummer.

And now comes news that Fannie and Freddie need a bigger bailout:

“Fannie Freddie Fix at $160 billion, $1 trillion worst case…”

Up, down…down, up. Flip ’em…flop ’em. Subsidize them…then rescue the subsidizer.

Even when markets are allowed to operate freely, they can never make up their minds. But at least it’s an honest confusion. Imagine what happens when the feds deliberately distort prices by raising the money supply, holding down interest rates, and subsidizing borrowers.

This week, Sheila Blair, chairwoman of the Federal Deposit Insurance Corporation, admitted that the US government was instrumental in causing the blow up in the housing market. The New York Times:

Deep in a speech she delivered Monday before the Housing Association of Nonprofit Developers – a speech that got surprisingly little attention – Ms. Bair listed her three main recommendations to “put the mortgage industry on a sounder footing.” The first two were the usual suspects: better consumer education and protection, and a reformed securitization market. Her third proposal, however, was a shocker, taking dead aim at one of the most sacrosanct tenets of American politics: the lofty goal of homeownership.

“For 25 years federal policy has been primarily focused on promoting homeownership and promoting the availability of credit to home buyers,” Ms. Bair said. She mentioned some of the many subsidies home buyers get, including the home mortgage interest deduction and the ability to deduct property taxes.

She tossed in Fannie Mae and Freddie Mac, the two “G.S.E.’s” (government-sponsored entities) whose role as a guarantor and securitizer of mortgages greatly expanded the ability of mortgage originators to make loans to home buyers – and which are now, of course, in federal conservatorship, with taxpayers holding the bag for their gargantuan losses.

She also pointed out that during the bubble, when anyone with a pulse could get a mortgage, the percentage of Americans owning homes rose to an unprecedented 69 percent, a number that was greeted with bipartisan hurrahs, but which turned out to be “unsustainable,” Ms. Bair said.

She concluded: “Sustainable homeownership is a worthy national goal. But it should not be pursued to excess when there are other, equally worthy solutions that help meet the needs of people for whom homeownership may not be the right answer.” Like, you know, renting.

We had no doubt about it. Anyone can make a mistake. But if you want to make a real mess of things, you need taxpayer support.

And more thoughts…

A newspaper from Victoria, Texas, reported that the Hispanic community decided to voice its displeasure with upcoming immigration law changes. How? By boycotting businesses owned by Caucasians. They then announced that the boycott was a success – reducing sales by 19%.

The business community, however, claimed success too. It said shoplifting had gone down 77%.

If those figures are correct, it suggests that Hispanics in Victoria buy 20% of goods sold but steal 3/4 of those that disappear from the shelves.

*** “What?”

Elizabeth and her husband (your editor) are both in Florida. Their youngest son, Edward, 16, was left in Maryland on his own for one night, Sunday, with careful instructions on what to do and what not to do. His brother would call him in the evening to make sure he was okay. His sister, not far away, would check on him on Monday morning. The family worried that he might be a little lonely in the house by himself.

“I got there this morning,” his sister reported. “He was outside with a whole group of his friends. They had the music blaring. It was only 10AM…and they were partying already. Then, I realized that some of them must have been partying all night.

“I asked him what was going on… He said he had just invited a couple of friends over to celebrate the end of the school year.

“He told me there wasn’t anyone in the house. But when I went in I found another group of a dozen teenagers. And one girl was asleep on Henry’s bed.

“That was it; I shooed them all out… But at least they seemed to be pretty good kids. They didn’t seem to be drinking or taking drugs…”

“Oh my… We’ve turned into the kind of parents other parents hate,” said Elizabeth when she heard the news. “We let our son turn the house into the neighborhood party central…”

Regards,

Bill Bonner
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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Comments

  1. The principle of home ownership dillusion Sheila Blair is describing is the very same interventionalist policy adopted on Higher Education in the U.K.
    The principle in short was incredibly egalitarian, to increase higher education participation to 50% of the school leaving year.
    Now when I was 16 (yes a long time ago), about 30% of the school left to take further education. Of that, about 50% would then progress onto university. So those in any school year likely to leave full time education with a degree (pass or fail) was around 15% of the school year. All good and proper as a degree was an elite educational achievement. It measured excellence.

    Not now.

    Now, they are aiming for 50% of all kids to leave full time education with a degree.

    This has meant that the subject matter has had to be dilluted to allow for a lower callibre candidate to achieve a reasonable outcome.
    It wouldn’t be right or nice to have 35% of kids going all the way to degree exams only to come away with nothing.
    Universities now have to teach their intake for 6 months to a year parts of the curriculum they hadn’t covered which previously they had. As a consequence it was not possible to cover the full curriculum, so a degree was revalued.

    It is now the situation in the U.K that for jobs where previously a good education meant a couple of A-Levels acquired at college, now, you require a degree.

    What is even worse is that these kids now have debts following their careers earning similar salaries to those who previously did the job with A-Level standard education, and since their are no student loans with A-Levels, no debt. The job pays no more because the new pre-requisite is a degree, yet the candidates need more wages to aid repaying the debts they incurred acquiring the qualification for the job.

    The same is true for housing. The more people want to own houses, then the more demand there is which will push up prices as people compete for the only affordable dream available. Create the capacity for the demand and you have to devalue housing so that they can afford to buy them, otherwise you deflate the market by over-supply. The other option of course is to do as they did in the U.S and you underwrite a buyers risk, or, you have to take the risk yourself and breach your normal 3.5 times earnings ratios as the banks in the U.K did.

    The U.K housing market has tanked. Cheap interest rates and a call to not repossess from government have prevented a crash, but, unless the wages are inflated to make the home loans affordable, housing will continue to tank.

    In Spain, it was even worse. Here you had the lending bun fight in the U.K transgress international borders into the aspirational sun drench villa set.
    Villas and appartments in southern Spain have devalued by over 50% in more than a few regions. My sister and her husband have lost about 35% of their investment, and they consider themselves fortunate.

    Reply
  2. “And then, the market discovered that houses weren’t really worth so much after all. ”

    Can any one (unaffected by the media) explain why it is that Australia has lucked out so far?

    Reply
  3. Couldn’t agree more, Joe.

    Your comments re “home ownership dillusion” and “subject matter (being) dilluted to allow for a lower callibre candidate” are spot on.

    It’s clearly the ‘dill’ factor at work. The unis are accepting more dills… and fiat currencies ‘dillute’ our purchasing power, even of clever weaponry.
    I hear the US has a new military rifle which, if lost during battle, actually phones the combatant, calling him up with precise coordinates.
    The price of these high callibre guns has risen appreciably, due to lack of US dilligence… .

    Reply
  4. Apparently the Hispanic boycott story is well known on Snopes – see http://www.snopes.com/politics/immigration/shoplift.asp

    Reply
  5. “From a low of 53 per cent in 1947, the home ownership rate climbed to 63 per cent in 1954 and then to 70 per cent in 1961. In subsequent Census years the home ownership rate remained at or around 70 per cent.”

    (Note: No data prior to 1947)

    http://www.aph.gov.au/library/pubs/rp/2008-09/09rp21.pdf

    Bill Bonner above: “Fannie and Freddie, for example, backed every crackerjack mortgage scheme that came along” – Yep, I do agree that encouraging people into home ownership who genuinely can not afford it should definitely be avoided. Especially if you are also going to have non-recourse loans! :) Way better that they rent as the excerpt from the New York Times says. Because I for one, don’t feel like bailing out either our borrowers or our banks ta. (Not that we’d get a choice of course!)

    And I still reckon that we’ve got an issue in Oz in that while our housing needs are changing, the stuff we are building and desirous of owning, doesn’t seem to reflect those needs very well. Like if we start talking about reverting to long-term medians or whatever, is it possible we might be wise to think about how we can revert to having 30 m2 of housing per occupant rather than 60 m2 maybe?

    Although yep, like everyone else, providing we can borrow to pay for a bit more than we need, I guess we will.

    Reply
  6. “…is it possible we might be wise to think about how we can revert to having 30 m2 of housing per occupant rather than 60 m2 maybe?”

    And now we’re stepping back into the 1880s, Ned; where Tolstoy’s Pahom discovers just how much land a man _really_ needs. ;)

    Reply
  7. Tolstoy is actually my favourite author Biker. I battled with the concept there could ever have been any finer work written than War and Peace … Until I read Anna Karenina. And while I admit that my opinion could be coloured by having come upon his stuff somewhat late in life when I was equipped to cope, I do envy the Russkies being able to read it in the original.

    Interesting that he seems to have eventually gone a bit nuts at the end though. Even the greatest of human “souls” can only cope with so much acceptance of reality perhaps? This has gotten moribund! Which is why Russkies invented Vodka!!! :)

    Reply
  8. on the Aussie housing market…

    I’d love to know why the thing won’t pop either. I’m in a group of similar people renting in Sydney’s Inner west. High income, reasonable assets, but just not quite willing to spend 1.5m on a 4br 100 year old house. in particular with the past 3 years of mass housing confusion and prior 4 years of housing slump (2004-2007).

    Some thoughts:
    -High migration of prime working families (building demand)
    -Low levels of suburb construction
    -Reduction of occupancy sizes (people per house) means you need more houses for the same population. I know a heck of a lot of single people living in a apartments \ townhouses.
    -Townhouse complexes and apartment blocks while they might be ‘residences’ are not desirable living spaces. Than pushes people who want a ‘home’ to the fringes or the ‘overpriced’ established markets.
    -Relatively poor mass transit coverage means that fringe living is in effect anti family. Coupled with
    -Female workforce. Adding females to the workforce since the 80’s (in numbers with reasonable equality of pay) added to the family buying power. (Same number of assets, more chasing dollars).

    In my circles I don’t see a much middle class property investing. A number of friends backed out when they realized they were subsidizing someone else’s rent for no capital gain. I don’t know what the national trends are however.

    I’m waiting on the interest rates to peak before I’ll look at buying back in…

    Chris in IT
    June 17, 2010
    Reply
  9. Some very valid points, Chis.

    “…not quite willing to spend 1.5m on a 4br 100 year old house.”

    Not our market, either. Don’t blame you.

    “A number of friends backed out when they realized they were subsidizing someone else’s rent for no capital gain.”

    Not surprised they backed out.

    “I’d love to know why the thing won’t pop either.”

    Don’t underestimate the ‘positive’ aspects of our Australian character, embedded in the adage: “She’ll be right, mate!” No market of _any_ kind is bulletproof, but Aussie Optimism is such a given that they’ve even built learning programmes for kids around its principles. I typed the term into google once and was astounded what came up.

    If your sole criterion for purchase is the need for rates to rise, you’re limiting your opportunities a little. You probably need five or six criteria for purchase. We have more than that, but it’s a bit of a hobby with us… . :)

    Biker Pete
    June 17, 2010
    Reply
  10. A bit off topic now, but my main drive to own a property related to what known as the siege mentality. I really just want my property to be one I can upgrade, not be inspected in, and most importantly, grow crops in where I don’t have a feeling of tilling someone else’s land. I can’t explain why I feel this way, maybe as I approach 40 I’m getting tired of the worlds madness and want to have the ability to wall myself off if I want ;)

    I mentioned a rate rise peak as I suspect that it, in addition with global instability will be a destabilizing factor. When the RBA changes course again to starts lowering rates, the housing market should hopefully be a ‘really bad investment’, I’m personally hoping for burning ruins ;)

    I just hope the RBA gets on with it and pops the bubble before my patience runs out. This one has been inflating all decade…

    BTW, “She’ll be right mate!” probably isn’t the only factor derailing more frequent insolvency to help lubricate the market sell off. Unlike the US, people can’t walk away from an underwater property. The thought of having to pay off a house you no longer have will nail most people’s feet to the floor. I’m also sure that Banks looking to reduce realized losses will work harder to keep people in houses. From what I understand about fractional reserves, the banks would lose their ability to lend on 10x1m houses for each 100k loss it sustains.

    Chris in IT
    June 17, 2010
    Reply
  11. “I’m personally hoping for burning ruins ;) I just hope the RBA gets on with it and pops the bubble before my patience runs out.”

    Kind of a narrow plan, but good luck. We’d be buying with all four hands.

    Interesting that you mention your troughs as “4 years of housing slump (2004-2007)”. Trying to reconstruct, we copped two low years (2007, 2008) here. Two properties bought in that period are now for sale, in our rising market. The slowdown in construction coming on top of a shortage of great blocks, means those ready to rent or buy have fewer options.

    Reply
  12. Chris in IT,

    If you want to grow crops I reckon you should start learning French, with AUD at highs against the Euro you should pick yourself up a country homestead with a bit of land in the countryside of France. Better to live rurally in Europe than in the middle of nowhere with drought and water restrictions. The TGV will steam you to civilisation in no time at all if you need some city action and culture.

    The number of reasons to live downunder have never been so low!

    Reply
  13. Further to why houses don’t drop in value : you have to sell your house to realise a lower value, and for that lower value to show up on median house prices, which is what everyone uses to measure property prices with. People sitting on properties that have dropped in value don’t show up in official figures.

    Most people don’t want to sell their house and rent because it’s a certain action based on an uncertain future. That, and a complete PITA as many Australian families don’t like renting because of low quality rental stock (they yield is so low most owners don’t bother fixing problems) and uncertainty of tenure – with 12 months being the longest period you can get a lease for, it’s not much incentive to sign up, get the kids into school, meet the neighbours, only to get moved on in 12 months time. The great australian dream still drives many, many people, and it’s desire for a free standing house still powers prices along.

    I can understand those completely who are sitting out the market and renting, but this just creates unmet demand which, in a way, will support prices into the future. People in their homes aren’t going to sell unless they are forced to because of the agents fees, stress, drama and finding a new place to live. I think most people I know would continue to pay their mortgage even with a 20-40% drop in the market value of their home. Ultimately, you’ve got to remember it’s not a perfect market, as most people will place a higher value on their own place compared to their neighbours, just because it is ‘home’. That’s irrational, but so is the housing market.

    I agree that Australian house prices are overvalued and a bubble is here, but there’s not going to be any pricking of that unless we get seriously higher unemployment and/or seriously higher interest rates. The former doesn’t look likely at this point, and the latter will be resisted at all costs by incumbent governments. A more likely scenario is 10 years of no price growth, or declines, coupled with higher inflation which will bring the income/price values more into line. After an initial 10-15% drop in the early 90’s, that’s what the Brisbane market did for 10 years, resulting in no *actual* price drop, but a long-term adjustment relative to incomes, where, by 1999, they were actually very affordable even at 8-10% interest rates.

    Reply
  14. France has its pros and cons. Ask Bill Bonner! Certainly a very different pace of life in France. Go and take a look for four months, as we did. Our kids, also in IT, travel endlessly with their laptops, working while they travel.

    There are some little provincial towns I’d give a miss. I saw the filthiest public toilet facilities in the world in one of them. No, I haven’t seen all of _Asia,_ but suffice it to say that no toilets could have been filthier without at least a dozen dead bodies rotting in a urinal.

    Travel provides a fair overview of alternative lives, but as my missus reminds me, actually _living_ there, just ain’t the same… .

    Reply
  15. One in seven taxpayers owns investment housing is my recollection of the stats. Given that some own more than one and there is a bit of public housing available, the number sounds about right (maybe?) to continue supporting the post 1961 average of about 70% who own their home and 30% who don’t.

    One thing that causes a few eyebrows to raise is that a good number of landlords earn under $50K pa in salary/wages – An interpretation I’ve heard is that there’s a reasonable number of “unsophisticated” investors having a go? :)

    70% home ownership seems to be about as “good” it gets in the OECD. Although some would argue that there is nothing too much wrong with Germany where the rate is more like 42% maybe? – Their laws in relation to lots of stuff on housing are different to ours I’ve heard, but never looked into it.

    Why won’t “it” pop? Well, assuming there is an it, (and I certainly allow for the possibility there could be), one of the factors to date would certainly seem to be that Oz is so low down on the list of countries that do smart things for a living (finance, high-tech etc), that when there is a global shock, our policy makers get a lot more warning than others and can take some steps to prop up housing prices. With the fact that we are by and large on variable interest rates also supporting their efforts I guess.

    “Townhouse complexes and apartment blocks while they might be ‘residences’ are not desirable living spaces” – That’s another part of the issue with comparing Oz to others I imagine – In that in a lot of the world such residences probably are regarded as quite desirable? And when our policy makers say We need more affordable housing, I suspect they are saying We need more of those types of residences. But with no-one being all that keen to come out and tell us direct that for everyone to live in the sorts of houses we love might not be sustainable in an era of rapid population growth.

    I only know one couple who bought million dollar property in Sydney – Right out of my league. But perfectly achievable for them thinking back. They bought maybe 5 years ago – Were in the late twenties/early thirties age group I guess (I didn’t know them well) – But both with well over 100K pa incomes then I’d fully imagine. And with their incomes being significantly higher now as they’ve advanced in their careers. Providing they are still together and have been a bit sensible, I’d fully expect they are seeing a lot of daylight in their mortgage now. And if such is the case, it wouldn’t surprise me too much if they also thought along the lines of Well that wasn’t too hard so let’s do it again; On the off chance that if the relationship goes belly-up we’ll have one each. And with people who are thinking that way maybe not being too phased by the thought that their rental return isn’t especially high. That’s just speculation of course, but in their situation, those sorts of thoughts may well flick through my mind these days?

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  16. “there’s a reasonable number of “unsophisticated” investors having a go :)”

    My exact thoughts reading the post from Chris, Ned.

    A young bloke (27? 28?) just dropped by, to sound me out on our prices.
    I advised him quickly we weren’t what he was looking for, then asked him about his intentions. He’s doing well (two local businesses) and aspires to what we’re doing. He knew a lot about business… far more than I do… but quickly took notes on a few things I advised him to research. It was quickly clear that despite intelligence… and real business nous… he knew very, very little about property, despite belonging to The Investors’ Club and reading widely.

    One of my own kids was about to step into a minefield, buying eight Montreal apartments, as you know. Fortunately, although he didn’t know what questions to ask, he knew who to ask (then he asked me!) His ma was able to give him a list of general questions, even though we know little about very Montreal’s property scene.

    There’s no question that many inexperienced players step in where angels fear to tread. The first step is knowing just which questions to ask.

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  17. “you have to sell your house to realise a lower value” – A mate of mine found himself in the situation where he really wanted to sell in the late 1990’s when Brisbane properties of the style he owned were down about 20% – To move back to the “old country” which he’d left when he was 19. While he didn’t enjoy the experience, he wouldn’t sell. And just dug his heels in and waited it out for a few years before testing his theory that the grass could be greener.

    PS: It wasn’t – As a Brahman Hindu who’d acquired some Western tastes, he missed his scotches and rump steaks. And found that squabbling with siblings for a share of the family “fortune” that they reckoned he had no right to after having been away for a couple of decades, wasn’t his thing. :) Last I heard of him he’d been in Perth for a reasonable while.

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  18. “hoping for burning ruins” – Are you hoping for the inflationary or deflationary kind? My personal preference would probably be to see a bit of stability? But I’m old and boring and stupid. As opposed to youthful and exuberant and wise. But fully expect that there’s an awful lot of Brazilians, Chinese, Indians and Russians who reckon life’s great mate! Regardless of what their Western contemporaries might be thinking.

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  19. Ned they may be earning 100K each and good luck to them if they are!

    I am happy for people who want to go out there and work hard and earn lots of money the real way (not stealing it like property investors do)

    They should be able to buy a very nice house for that sort of money, the fact that they could only be able to afford an average house on that sort of a wage (I say affordable in regards to the way international studies would define affordable) is not right.

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  20. “not stealing it like property investors do” – Property investors don’t “steal” money Steve – They take some risk and hope to get a bit of reward. Whilst knowing it isn’t at all guaranteed. Despite the last decade in Oz having been a particularly pleasant happenstance for most of them that very few of them may have genuinely predicted?

    But as things stand for now in the aftermath, they supply cheapy accomodation (And yes – It’s taxpayer subsidised if they are in debt – Dunno how many are?) to those who genuinely can’t afford it/figure they can do better investing elsewhere/waiting for a “crash”.

    “is not right” – Reality is very, very, very rarely “right” in my experience mate? And if that changes in either of our lifetimes “I’ll eat my hat” as the saying goes.

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  21. “…not stealing it like property investors do…”

    Tempted to just type “Bwahahahaha!~” and leave it at that, but your silly comment deserves a respectable reply, Steven.*

    Your plan calls for ruination of thousands, if not millions, of your fellow Aussies… so that you may pick up one of their homes, cheaply. Note that folk like Ned and I won’t be affected. No, you’d happily steal the shelter of one of your fellow baggage-handlers, his wife and kids! ;) That, mate, is your plan!~ Why the pretense at _ethics_ and _morality_?!~

    There’s rich pickings at airliner crashes, too. You’re in an ideal position to quietly remove a Rolex from the dismembered arm of a charred passenger, son.

    At last count you have $130K+. You’re not in any need.

    We’ll also buy, if prices fall. The ‘victims’ will be WA’s two major developers (as they were in ’08). We make _no pretense_ at an ethical position. Nor do we spend our nights on our knees praying for ‘burning ruins’ so we can benefit. If I was your dad… and _caught_ you at it…
    I’d plant my boot so far up your backside you wouldn’t need a toothbrush.

    * … your silly comment deserves a respectable reply, Steven.
    Nah, sorry, you need the boot… .

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  22. The most serious major property crash that I know of to date is probably Spain? (Only about 14% down is the official figure; But no one actually believes that.) They are in pretty bad nick with 20% unemployment across the board and under 25 yo unemployment running at 40%. Yep, Spain is in a genuine depression!

    And being aware of same, like Biker, I’m a bit reticent about “hoping” anything similar for Oz. If it happens, it happens I guess. And imagine that by and large, the very great majority will cope/struggle through/pop out the other end owing a bloody lot for the basics if my family anecdotes from the 1930’s depression are accurate. Whilst some will also fold. And a relatively rare few who decide to operate outside the law may prosper.

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  23. Ned tell me what a house is for???

    what is the reason it is built for???

    Is it built for you to speculate over and make you rich???

    Or is it built to put a roof over peoples heads???

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  24. BP: “The first step is knowing just which questions to ask.”

    Think he misunderstood, mate. :)

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  25. “Your plan calls for ruination of thousands, if not millions, of your fellow Aussies… so that you may pick up one of their homes, cheaply.”

    You plans were what exactly when you picked up your investment properties 10/15/20 years ago???

    that would have cost you back then inflation adjusted in todays money to about $150K – 190K???

    I would say YOU PLANED to FUC* UP thousand if not millions of YOUR fellow AUSSIES and make them pay EXPENSIVE prices for average houses in the hope that the value would sky rocket, Putting them in a position of being able to easily default on their mortgages!

    Don’t get on here and try to make yourself out to be some sort of a saint!

    I have made this very same point with you before!!!

    Reply
  26. Hey, c’mon, Steve. You’re confusing plans with planes. Your career options don’t look promising, son.

    No, our actual mantra was “Screw the rich!” We bought properties which only the rich could _afford_ to buy from us. Now we build nice homes for all the happy folk who have left the nest, to begin their adult lives free of apron strings. ;)

    Hint 1: When you SHOUT it means you’re losing it, Steven.
    Hint 2: When you’re losing it, your communication suffers.
    Hint 3: You can make the same silly ‘point’ repeatedly. Nothing changes… :)

    Reply
  27. Yes Saint Biker Pete whatever you say

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  28. Cool.

    Look, in the end I’m crucified upside down and you get stoned to death.
    We saints tend to be persecuted for our beliefs, St. Steven.
    Your last post sounded pretty stoned anyway… .
    Very much ‘Fear & Loathing’… and you aren’t even in LV… . :)

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  29. Steve, it would seem that you don’t feel that people should be allowed to own housing for any other reason than living in it themselves? That is a pretty radical plan. A couple of points:

    * Do you think you might be able to convince another country to be the guinea pig? Just in case there are any unpleasant unforeseen consequences.

    * In all honesty, it is probably so radical that we aren’t ever likely to see it implemented anywhere, so we can probably forget it?

    Neg gearing is another one you mention occasionally – I’m not too sure how I feel about that? If it get’s tweaked (and at some time it could), then I’m neither here nor there about it personally. Providing the tweaks don’t do fundamental damage to the economy. But I must also admit that reading all the anti-baby boomer stuff on this site, that I wouldn’t be too surprised if after any such tweaks, some commentors were to start saying The baby boomers had all the advantages of neg gearing, but we don’t, and that’s not fair.

    Too hard for my head I’m afraid. I’ll leave changing the world to those who are way, way smarter than me – Hopefully! :)

    Reply
  30. Houses ARE primarily for living in.
    When the most important financial decision most people
    have to make is a fraud scheme,
    they leave and go elsewhere.

    Or they do not have childrem which is why ALL oecd countries
    have NEGATIVE birth rates.

    As the BB retire, the number of people who can work and buy
    will leave a massive hole, combined with negative birth rates,
    can only be a bubble bursting.

    Study the housing economy and population dynamics of France
    during the 1920’s and 1930’s.

    Lots of big empty houses worth loads, empty
    because they were ‘investments’ waiting to mature.

    Writings on the wall.

    Baby boomers retiring plus negative population growth
    equals…POP

    Reply
  31. “As the BB retire, the number of people who can work and buy
    will leave a massive hole, combined with negative birth rates,
    can only be a bubble bursting.”

    The most sensible warning I’ve read on DRA yet.

    What it predicts, _downsizing_, is the reason we stopped buying McMansions a few years back… and started building in the $340K – $440K range.

    What it also predicts is that those younger than the BB generation will be supporting the oldies’ pensions* and health issues* for generations… unless governments flood the country with immigrants… and increase baby bonuses and child endowment (which very few countries have, BTW… !!~)

    Of course, if they do that, a housing shortage will again fuel house prices. Clearly, timing is critical here… ;)

    * Not mine. We won’t qualify for any assistance… nor do we expect it. :)

    Reply
  32. “As the BB retire, the number of people who can work and buy
    will leave a massive hole, combined with negative birth rates,
    can only be a bubble bursting” – Don’t forget those who may well feel inclined to sell investment property to support their retirement. (And stocks could underperform for the same reason – Not sure to what extent compulsory super contribs will prop them up? Possibly not as much as one might be tempted to think given that our stock market seems to be basically linked to overseas markets where such contributions are not compulsory.)

    But anyway, I was certainly feeling similar things about BB retirements about a decade ago. And as such, very consciously avoided the temptation to buy into any of the fun in the sun lifestyle locations that retirees seem to have been drawn to in large numbers for at least two decades now. Although I never realised just how much immigration we’d been getting until recently. And there surely has been huge capital growth in some such locations up QLD way I gather.

    Prices in such locations could hold I guess? But still must admit that they sound potentially higher risk than I’m comfortable with long-term.

    Reply
  33. Just thinking about it – That would account for some of those 800,000 odd dwellings that were unoccupied on census night I guess – People who are still working and living in the city but have already bought their retirement home and just use it on weekends whilst waiting to retire.

    Reply

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