Fresh back from a whirlwind trip to Adelaide to see Victoria smash South Australia in cricket and watch the Tour Down Under up close, your editor finds the financial markets in a state of acute anxiety, while investors, according to a survey, are keeping on the sunny side of life. Reality is keeping a low profile these days. But let's see if we can find some clues about where he's hiding out.
He (Mr. Reality) left a calling card in New York on Friday, that's for sure. Stocks in New York fell 2.09% on the Dow. Wall Street has realised that it's become the political whipping boy for a President who needs a popular enemy. It's all probably a bunch of bluster to get the President some political momentum.
But if anything has momentum, it's the volatility index. It's up 55% in the last three days (see chart) The VIX measures implied volatility on the S&P 500. It's nominally a measure of the cost of options on the U.S. exchange. It goes up when uncertainty increases. It does that because options are a way of hedging against future outcomes (positive and negative). When the future becomes more uncertain, the cost of insuring against it (at least in the stock market) goes up.
It's all basic supply and demand really. But in this case, demand for uncertainty insurance is rising because the supply of uncertainty is soaring. The U.S. economy, the Japanese economy, the European currency, the Chinese bubble, the Australia resource super cycle...these are all part of the complex adaptive system that is the global economy. Hmm.
84% of Australians think house prices will rise in the next twelve months, according to the January Westpac-Melbourne Institute Consumer Sentiment Survey. Mr. Reality is clearly giving these Australians a wide berth. Twenty one percent of those surveyed believe house prices will rise by 10% or more in the next twelve months.
Doing a little back of the envelope math, and if our calculations are correct, a $450k property compounding at 10% a year for 10 years would turn into a $1.16 million dollar property. It would be a gain of 160%. And one million dollars would be the new median house price in Australia.
Now you have to assume a lot of income growth from here for affordability to remain the same with house prices at those levels. Or you'd have to assume much lower interest rates. That would be a stupid assumption, though, given that interest rates are headed up at the moment, and that we are likely at the low end of the interest rate cycle.
Perhaps the 21% of people believe house prices will go up by 10% a year are all real estate agents and bankers. Or perhaps they are functionally illiterate in the financial sense. Either way, it's a large percentage of people surveyed to believe such clap trap. It's this kind of belief that is the rocket fuel for the blow off stage of a bubble.
But we're not going to win that debate this week. We'd just like to point out that this is whole point of the Daily Reckoning really, to scrutinise received thinking and conventional wisdom. Whether it's the housing bubble, the economy, or global warming, your best defence against a world full of bogus thinking is to question it.
Of course that doesn't mean you'll always be right. For example, we're obviously not a climatologist. The mail bag was full of some choice words for the comments we published last week (Burn More Coal). The polite synopsis is that we were told to stick to our knitting.
But calling out mainstream thought IS our knitting. And climate change is fair game because the financial stakes are extremely high. Indeed, all the stakes are high (political too). We're not going to rehash the argument here. However, if you don't like uncomfortable ideas, don't read them!
Don't worry though. We will say, yes, most of the time our beat here is investing. And there is plenty to think and write about on that score. So we'll get back to the main game this week. Until tomorrow!
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:
- Europe Gets Obamania
- Parasites and Chiselers Who Benefit from the Bailout
- Electricity Crisis is Coming
- Consumer Prices are Rising at About 10% Per Year
- No Great Slump, but Stagnant Inflation Looms
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 john on 25 January 2010:
Dan, looking at the longterm world temperature graphs for the past couple of million years, it would appear that the entire scope of human civilisation sits on the top of the latest warm peak. Those peaks seem to last between 10K and 20K years, and this one is already about 10k years old. I would think that global warming is not the biggest climate problem in the long term. It would be much more difficult growing crops under a kilometre of ice. Moreover, our ancesters adapted to constant climate change without resorting to world blab fests. And anyone who thinks that they can alter the climate by leaving the airconditioner off for a few hours probably has great faith in modern government.
Comment by Matty on 25 January 2010:
It is after all a survey for which we have no means of auditing the validty and accuracy of the respondents. In fact, you could argue if the survey has in fact be done at all. The results were never certified by an independent body as true.
Given the rosy house price expectation, perhaps Westpac should do a U-turn and not run away from the Australia mortgage market.
In other words, the may as well have said 99% of all Aussie believe house prices will rise and the 50% of those believe house prices will rise 20% in 2010.
But then again, it will be overdoing it.
Comment by Dan on 25 January 2010:
Demand is still outstripping supply. Money is being printed and will float around until it finds a home... literally. That's at least what the majority appears to be thinking, and it's not unreasonable (though it may be completely wrong).
Comment by Roy on 25 January 2010:
Well someone should tell the BANKS, perhaps they need reminding house prices only ever go up, just look around the world, not a single house market crash ever.? I bet these same people would have also said the world was flat a few hundred years ago. Just because the majority think something it true doesnt make it so. Like I've said for the past 3 years the BANKS themselves will be to blame for the bursting of the bubble through restriction of credit and higher interest rates. So far they are on track. I think this survey just points out how many house speculating debt junkies there are in Australia, lets face it if there wasnt we wouldnt have a bubble to start with. Before I get ah you must be a renter, I own my own home.
Comment by Bertie on 26 January 2010:
People who own houses are hopeful prices will rise, and in Australia I think that is most of us.
Also some words on China's bubble and the resources fueling it
http://www.cnbc.com/id/35056774
Comment by Brian on 26 January 2010:
Dan said it perfectly. Money is being printed and will float around until it finds a HOME. (I like it). If a company with 1 million shares on issue gives its employees share bonuses etc and over time increases the shares on issue to 2 million then the share price should be half. Right? So when governments around the world dug their way out of the GFC by printing money (which will make the value of that money drop in proportion), house prices will rise by nothing more than the fact that it is an asset and not cash. We won't even mention what the ADDED effect of demand outstripping supply and China and India's once in a generation growth will do to the property market over the next few years, especially in Western Australia. If you are on the property sidelines waiting for a fall then you best get out your thermals and pull up a chair besides Australia's biggest property mug Steven Keen and set yourself for a long wait whilst others with less total wealth than you (and possibly a lot younger) who did get aboard buying assets wave to you as their net worth screames past yours.
Comment by Dan on 26 January 2010:
Oh, I still don't write off a house price correction (up to 30%). The current house pricing trend is hard to sustain domestically (by the middle and lower classes), purely because people are so heavily indebted. So there either needs to be:
1. Wage increases
2. A fall in the CPI (excluding housing) resulting in increased disposable income
3. Influx of money from abroad (eg: some kind of corporatization of non-commercial real estate ... either directly or by stealth)
4. Continuing, significant increases in the first home buyer's grant
5. Other kinds of blatant government intervention
And for a housing correction, I think another stock market crash (overdue) would go some way towards that, which would create an ugly scenario of an indebted government taking higher taxes, companies laying off workers, etc. Look to Pakistan/India/China for a possible trigger. There are big efforts being made by superpowers to destabilize the region.
We might have 'dodged a bullet', as the boss said, but I rather think the government just delayed things and has taken a big gamble. They say ignorance is bliss, but even more true is that bliss is ignorance. I'd be very very wary of sinking all my cash flow into interest repayments, and concentrate on reducing future exposure to a high inflation situation without wages growth.
Comment by Pete on 26 January 2010:
Thirty percent crash? Good luck with that, Dan!
Yes, the following are likely:
1. Wage increases
3. Influx of money from abroad
5. All kinds of blatant government intervention to support construction and provide shelter.
Some states will see rents rise as never before. I'd modify Brian's post to read:
"....set yourself for a long wait whilst others with less total wealth than you (and possibly a lot younger) who did get aboard buying assets 'own rentals while you kindly pay them off for them'... "
We all have choices. We live with those choices, wise and foolish. Anyone who thinks any tangible on Maslow's hierarchy (other than food and water) comes before shelter, is courting disaster... .
Comment by Dan on 26 January 2010:
Yes, right you are Pete. The 30% is just based on long term trends for Australia (ie: since 1920's).
But do you think rents can rise so rapidly? Who has the money for it? From the public service agreements I've read about and seen, wage rises are incremental at best.
Comment by Bargeass on 26 January 2010:
The world's most prolific gamblers are always keen to bet on a bubble.
They just can't help themselves. A medical person would probably classify the condition as addiction.
When the bubble bursts they will all look to the government to bail them out of their own foolishness same as always.
Comment by Pete on 26 January 2010:
Dan: "...wage rises are incremental at best... " Well, we're advised that a massive skills shortage will hit WA within months. As with accommodation, demand will drive prices.
Bargearse: "The world's most prolific gamblers are always keen to bet on a bubble." Some of us suspect gold is a bubble right now, BA. Valued at $350 per oz more than it costs to produce. A medical person would probably classify the condition as terminal.
Comment by Steven on 26 January 2010:
Pete, What price do you think average house prices in Australia will have to reach before you think they are in a bubble?
Comment by Pete on 26 January 2010:
How long is a piece of string? We'll only know what is, or isn't a bubble, if/when it bursts.
Where is your money placed, Steven?
Comment by Bertie on 26 January 2010:
If Aussie housing is in a bubble it's not a very big bubble and once it pops prices will be back up quick smart
Comment by Cameron Clawhammer on 26 January 2010:
Don't worry Dan, As a geologist with a more realistic long term view of climate change, I can tell you people are just as unhappy to listen to my views on the historical facts about the con of man-made climate change as they are listening to historical facts about housing bubbles. It's dogma that's been drummed into them since they were in their cots! Facts and past events have no place in Dogma and Religion.
This bubble situation is like when your father overinflated a balloon at a party to entertain the kids, there comes a point where people start putting their fingers in their ears and squinting their eyes. The father keeps puffing and the ballon may expand another 50% after people start preparing for the bang. When it does people remark, "I didn't think it would get that big!" But with our housing bubble, no one's got their fingers in their ears. They're all staring in amazement despite the fact the signs of strain are right in front of them. And when it pops, they'll be standing there, with their ears ringing, bits of the balloon all over them and they'll still be remarking "I thought it had a lot more to go!"
Comment by Pete on 26 January 2010:
"They say ignorance is bliss, but even more true is that bliss is ignorance."
Actually, bliss is getting the tax mix _exactly_ right. By July 2010, we should be there.
As Ned has noted, that must be all you've got.)
(Go for it, Stars-n-Thumbs Boys!
Comment by Ned S on 26 January 2010:
I've been doing some calcs Biker - Unfinished as yet but will try to say more about them over the next few days. In the interim, about all I'd suggest is that betting long term against Oz house prices doesn't seem to have a strong track record for producing lots of new multi-millionaires.
Comment by Ned S on 26 January 2010:
I gave you a "5" Cameron - Whether I agree or disgaree is irrelevant - You wrote in a somewhat entertaining fashion about Oz's most tired old topic!
Comment by Pete on 26 January 2010:
I've just thought of something! With all of this supposed immigration, where are our wage increases going to come from? Not really sure, but it won't be from a labour shortage!!
Time to dig Ned's soakwell
Comment by Bertie on 27 January 2010:
Nothing like a post on housing to get a bit of interest
Comment by Freddie on 27 January 2010:
If my wages go up even $5 a week this year so I can leverage more debt to keep the debt-driven economy afloat I'll eat my hat.
"How much more debt can I get with $5 a week paying back over 5 years at 15% interest?" That is the question many will ask.
However I will not hold my breath until the June performace reviews. 24 months on the same income, with 24 months' worth of CPI which was a long way off being 0 or negative. Can we make it 36? You know you can!
But Australians are resilient, and our banks are accommodating. "What recession?" we ask. The income lost through stagnant wages and a non-negaive CPI, and what should have equated to reduced spending, is made up by credit spending, and then some.
The private debt stats speak for themselves.
Comment by Andy on 27 January 2010:
Up here at the northern Gold Coast (the former boom capital of Oz) the property market has been flat to slightly decreasing for the last year. There are less houses for sale, and less buyers looking at them, according to rpt data. I interpret this situation like this:
-many heavily mortgaged owners cant afford to sell (or their banks wont let them), they want to hang on
-others like to believe that Santa will increase their property value this year, so they hang on
-many of the sales that actually go through (after the buyers contracts collapse a few times) are forced and the sales figures are way less than the advertised prices
-buyers believe that the property values are overpriced
-these lead to a gradually deflating bubble, but the bubble tries to repair itself as its skin has very high surface tension.
Comment by No interest on 27 January 2010:
Sorry Bertie, this is as interesting as a rental agreement. The same people Biker and Ned S make comments and rebuttals to show everyone how superior they are. They are the investment GODS who can't be touched in good or bad times and the scoff at any fool who isn't in the market right now and with minimal exposure.
Revelling in the misery their generation has caused others is so revolting it makes me want to vomit all over my keyboard
Comment by Don on 27 January 2010:
Interesting times afoot. Keep an eye on the metal prices to see what will happen in Oz - I know I am!
http://www.metalprices.com
Comment by Steven on 27 January 2010:
my money is placed in the bank obviously
Comment by fred on 27 January 2010:
deep article!!!
hi Dan,can you have a point of Chinese property?
Comment by fred on 27 January 2010:
and according to what that Chinese property is a big bubble?.
Comment by Ned S on 27 January 2010:
What exactly is your "misery" No interest - Living at home on the cheap? Having to pay some landord 3.5% rent rather than 6% to a bank? With the landlord paying the rates and insurance - Rather than you!
I don't love the system one little bit either - And I sent Tanya Plibersek (the Commonwealth government Housing minister) a letter about 18 months ago suggesting one way that they could take a lot of pressure off housing prices.
Have you done as much? Or are you just one more of the whingers who makes me want to vomit all over your keyboard too?
Comment by Steven on 27 January 2010:
They are the investment GODS who can't be touched in good or bad times
I would go one step further No Interest they think they are invincible!
Comment by Ned S on 27 January 2010:
And by saying that you've just proved yourself wrong again Steven.
Comment by Pete on 27 January 2010:
Sorry Ned mate, I've changed my mind on the whole Reel Estate machine.
This video did it for me, it's compelling.
http://www.youtube.com/watch?v=1PLr2pKkzEs
Comment by Ned S on 27 January 2010:
I just scored you a "5" too No interest - As I reckon Steven needs (as opposed to "deserves") all the help he can get.
Lordy, you are such silly children. Wonder if we can swap you blokes for a chinaman or two? Probably not - The chinks plan to rule the world in another decade or three. And figure they have an uphill enough battle as it is I guess.
"Aussies really are battlers" ... Take ya blinkers off Biker!
Comment by Ned S on 27 January 2010:
Don't watch vids mate - My Oz "battler" cheapy home dial up connection doesn't support same? But yeh, I can understand you folding and rushing to offload all your Oz property risk - The We wanna, we wanna, we wanna wee arguments being offered by all my fellow bears of late, really are QUITE compelling I must say!!!
Comment by Pete on 27 January 2010:
Ned mate, not offloading mi-land just yet. Far too much debt! A millionaire on paper (but don't mention the banks share!
)
I am becoming sympathetic to these first home BYEr's though. Sort of. If things keep going like this my grandkids will need to be real estate agents, pollies or even worse, renters!
Maybe we should both rethink our position. Bah, i'm too old for this
Comment by Ned S on 27 January 2010:
I've seen mentally tough people in my life. Few if any of them being Aussies who would now be under 55. Which at 51 still makes me a bit of a sooky squealer like lots of the other "girls" on this site. But at least having seen the competition, I'm under no illusions as to the fact that it exists. And will mince thee up and spit thee out - Barring a bit of gonad growth!
Comment by Ned S on 27 January 2010:
Yeh, yeh sure mate ... Whatever "you" say!
As I've done the affordability calcs and these kids are in the sweetest smelling clover!!! Which is why so many of them bought recently of course.
Except for the odd We wanna, we wanna, we wanna wee bearlings what want Great Depression II and WWIII and a cheapy ...
Comment by Pete on 27 January 2010:
The boogeys are taking my name in vain again, Ned*.
They come in four handy handkerchief sizes: 1.) the fellas who used to say you couldn't make a buck in realty... and now realise they've blown it; 2.) the blokes who predicted a major crash and blew it; 3.) angry tenants who realise where rents are going, but can't face putting _that_ into print... and talk about the next generation rather than their own mess; 4.) those who just don't understand how investment and taxation work. 'Cash Obviously' is in the latter group.
* My last blog ended: Go for it, Stars-n-Thumbs Boys! As Ned has noted, that must be all you've got.
Anything after that is their nose clearing...
Comment by Ned S on 27 January 2010:
Or rather than "grow gonads" one can rely on good ole Uncle Kev and Co (aka the tax payer) ta carry you as always of course.
Hey, ya know people are mentally strong when you are offering the usual Oz type commisserations to a pretty poor family that has just lost its principal bread winner - And the response is to show a bit of concern for your expressed thoughts and say something like Gee, don't take it TOO hard mate - People DO die yunno!
And that's without even BEGINNING to chat about some of the mentally "hard" types out there. 
And Oh yeh, Aussie house prices are a bit high and some of us are really sad about it ... Sniff, sniff ... Cry, cry ...
My God! You Aussie "girls" are SUCH a hoot!!!
Comment by Ned S on 27 January 2010:
OS family stuff incoming mate - And I said I'd call today. Will pop back online before snooze time maybe?
Comment by Steve on 27 January 2010:
And Oh yeh, Aussie house prices are a bit high and some of us are really sad about it ... Sniff, sniff ... Cry, cry ...
"Adjusted for inflation, the average house price in Australia is now more than twice what it was 20 years ago." SMH 26/01/10.
Ned you would be crying too if you had to pay twice as much for a house than what it should be.
Comment by Ned S on 27 January 2010:
No OS connection right now so just popped back for a quick chat - Have you ever pulled one of your own adult teeth No interest? Or burnt off a skin cancer yourself with HCl? And thought of such things as quite normal and reasonable things to do? I must admit that I see "misery" as a somewhat relative term in the great global experience of life!
Must pop off and see if international comms are available again ... Toodle pip!
Comment by Steve on 27 January 2010:
Wtf are you on about?
Comment by Pete on 27 January 2010:
First Home CRYers, haha I am a genius!
I'm like you Ned, I don't care for the younger generations. Boo, hoo, hoo ...
SO much for the Aussie "battler" ... the youth of today wouldn't know a battle. Our generation are the real battlers Ned (we fight a few battles in here eh?)
Generation WHY deserve to pay DEARly for their homes: we never had dem iPods!
Comment by Steve on 27 January 2010:
You talk rubbish Ned are u on the Pis tonight or what???
Comment by Ned S on 27 January 2010:
Piss orf retard!
Comment by Steve on 27 January 2010:
Wouldnt know how to battle???
You talk rubbish too
"Adjusted for inflation, the average house price in Australia is now more than twice what it was 20 years ago." SMH 26/01/10.
and you are the battlers??? give yourself an uppercut Pete
Comment by Pete on 27 January 2010:
Snorts are at it agin mate. Last post wasn't mine.
Speaking of the ole hydrige chlor, we used to add a nip to our spirits to liven things up a bit! Imagine these duffers tryin that one on eh?
Unlike these GRASShoppers we've been through the rough Ned. It's about time they felt it too.
Mind those ICs mate, right costly
Comment by Ned S on 27 January 2010:
The PO comment was meant to the dill pretending to be "Pete" Steven. And no, I do NOT talk rubbish ... Although I DO know that many younger Aussies have little awareness of what the broader world is like.
Comment by Steve on 27 January 2010:
What???
I state a fact to you, and then you start dribbling crap about have I ever pulled one of my teeth out or cut a cancer off, and expect me to draw some kind of relevance as to WTF you are on about!!!
Comment by Ned S on 27 January 2010:
The more HCl "you" glug, the better place the world will be "Pete"!
But I really must run now ...
Comment by Pete on 27 January 2010:
Me n my mate Ned could easily take your uppercut StEVE.
We might be old, and old fashioned, but we're hard as nails.
Considerin' uppin' shop to northern Canada even! The wife has me convinced. What ya reckon mate?
Comment by Ned S on 27 January 2010:
Yep, we just don't relate at all. But MUST run as I said! And good luck with your gamble too ...
Comment by Pete on 27 January 2010:
Ned mate, why so SERIOUSSSH??
Comment by Ned S on 27 January 2010:
Marry any boy you can afford Pill Boy - I'm not given to getting concerned about the bedroom antics of others. Ho hum ...
Comment by Pete on 27 January 2010:
Ned mate, we're desTINed to be with each other
See what I did there? TIN? I'm pretty clever with words eh Neddy. But so are you, and that's why we're great together. If only we had a willing audience!
Sea you later mate
Comment by Pete on 27 January 2010:
Can you feel the rage radiated by the Property Bears? They're angry because they're winners... !
Comment by Ned S on 27 January 2010:
Is tin going up a bit in price prozak? That's nice - I sincerely hope you profit from your trade. But seriously mate, I'd suggest you try a different drug.
But ni nite anyway - Gotta get me beauty sleep. As tomorrow's a new day with more Gen Ys to oppress and crippled Haitians to collect body parts from etc ... It's all go, go, go for us ole boomers ya know!
Comment by Pete on 27 January 2010:
Us boomers will shop until we drop!
Might be a short shopping spree
Toodle-pip Ned mate. Tomorrow i'll show you that tattoo I got on my inner thigh.
Comment by Ned S on 27 January 2010:
Heck, ya'd think a bloke had pinched their favourite chook or somesuch because he bought a house in 1996 and then went OS and worked his arse off and came back and bought two more in 2008. Silly little buggers!
Comment by Pete on 27 January 2010:
"Toodle-pip Ned mate. Tomorrow i'll show you that tattoo I got on my inner thigh." Mate, me and Ned are just friends, right?
Pill-popping tin-men who pay their fortnightly dues to us Ned, that's all they are.
On that note, i'll see you tomorrow mate. Think i've found myself a nice shack in Ravensthorpe, should do up nicely. Will tell ya some more tomorrow mate
Comment by Pete on 27 January 2010:
Prozak, the fluoxetine isn't working, son. Your multiple personalities are leading you down the AIDS path, mate.
)
(Fairies at the garden of your bottom. But at least we can discern your gender preferences. God save your queens, Prozak... ! Think we'll call you Butch, from now on.
Comment by Dan on 28 January 2010:
I've heard of white noise, pink noise, as forms of random and meaningless interference, but this would have to be termed brown noise. Would be good to come here and read stuff that is even vaguely on-topic please!
Comment by christina on 28 January 2010:
Thanks Pete, that youtube video you told us about is awesome, and oh so true
Comment by SteveG on 28 January 2010:
When I was working in retail, there was this guy who came in pretty much every day. Now this guy who reckoned he was a federal cop. Among other wonderful stories, he also reckoned that he won second divison in the lottery (for the second time, apparently).
Ran into him one day at his work. Turns out he was actually a security guard. To his credit, he was able to spin this wonderful story about how he had to leave the force because he was a corruption whistleblower, but he got a packet of cash on his way out. I guess he was just a lonely bloke with a penchant for fantasy.
When I read Ned and Pete's conversations, I'm reminded of this chap. By my reckoning, there's a fair bit of crap going on in these conversations ... quite possibly by the same author.
Could be wrong, of course, but it wouldn't be the weirdest thing I've seen.
Comment by Dan on 28 January 2010:
Both the share market rally (contrived as it appears to be) and the housing bubble (it IS a bubble, contrived due to the FHOG) are deliberate measures to prop up banks and prevent thrift on the part of the general population - ensuring their continuing obedience due to dependence on banks and government. Of course, as Bill says, it means that natural adaptation of the economy doesn't happen. The situation favours banks which have no intention of suffering the effects of their own poisonous credit policies. But ultimately all of it is worsening the long term economic future for everyone else. It's amazing how people just gaze into the headlights like a dazed wombat.
I reckon the collapse of both stocks and the removal of the FHOG will be carefully timed to have maximum impact on middle income Australia, which has become hooked on shares and ever growing mortgages. It's like the nation is borrowing to buy casino chips. They will get wiped out and will have to start at the bottom, working harder for less and into old age. It will be too late to be angry when it happens - the only way to prepare for it that I can see is to get out of debt as soon as possible.
Comment by prozak on 28 January 2010:
Wow!
I've been on hols since before xmas and haven't even read a DR article let alone posted here and yet I am still at the front of the mind of two people.
Please forget about me you two. You both need as much of your spare brain capacity as possible. But, if you insist on obsessing over me please ensure you post a few replies by me also as I wont be on DR very often (due to poor content) this year, otherwise you look like two sad pathetic old men arguing with yourselves and obsessing over someone you've never met.
For all other DR readers with IQ's above 50. Hope you all had a great xmas and new year.
Comment by No interest on 28 January 2010:
Ned S, man you are a frackin looney!! I can't believe we have been buried as a generation by shining examples of post modern mental health patience such as yourself. I would also like to ad that you making assumptions such as
"What exactly is your "misery" No interest - Living at home on the cheap? Having to pay some landord 3.5% rent rather than 6% to a bank? With the landlord paying the rates and insurance - Rather than you!"
Just reinforces the belief i have the you are a greedy deluded individual who for all intended purposes should be the poster child for the baby boomers with the slogan splattered across your chest "i'm right thanks Jack!!"
Now because i am 28 (lived out of home since i was 19) and looking to buy my first home and unable to do so within 35km of the CBD where i work, please tell me what i am missing with your calcs
"As I've done the affordability calcs and these kids are in the sweetest smelling clover!!!"
I wanna be in the sweetest smelling clover Ned, emlgihtrn me with you untapped knowledge and let a no good gen y whinger have a leg up on that first rung. I earn $53,000pa she earns $38,000 we have one debt my wifes car $140pw (have payed off hecs, credit card personal loans. We have to pay for 2 mobiles for work $185 pm with broadband double up as home phones to avoid line rental, health insurance $225pm (pre-existing illness) rent $320pw food around $150,
We eat out once a week and RARELY buy clothes, with a little help of family we have saved $43,800 odd for a deposit. Tell me how i can afford the median house price, so not the best and not the worst just average old 'C' grade housing (in Melb right now by all reprts $517,000) without having to move 35km out of the city or live in an apartment (which is a false economy given the extra costs to get back into the city daily)
Oh and heres the kicker, we have a baby due in October do for about 6 months i will be down to just my wage.
Parameters : a Logical loan term and setup - 25 years and principal and interst payments.
PLEASE enlighten me
Comment by Dan on 28 January 2010:
No Interest - For what it's worth, people we know who are in your situation did this:
1. Paid off the car before they bought any other major item.
2a. Changed mobile phones to pre-paid, only used them for emergency calls (eg: for roadside assistance if the car breaks down, etc)
2b. Changed broadband to naked internet (or bought telstra's homeline budget and then broadband on top), and then only made calls via VOIP. This reduced the monthly communications bill to less than $100.
3. Found work outside of the capital city where rents are better value for money.
4. Only bought when it was clear that per week ownership was equal to the rent, plus the job security was there.
The thing is not to try to save money by removing fresh food from the diet, etc, but to avoid all the scams, like mobile phones, personal loans, car loans and so forth. Monthly costs are best cut through systematic changes like car pooling, consolidating your communications bills, avoiding shopping at large glamorous shopping centres, etc, and trying to make sure things are as tax efficient as possible. Point is to make 48K go further. People on 60K+ generally waste a lot of their money, and a thrifty person on 48K can do as well as them with a bit of effort.
In other words, I reckon 48k is not enough currently to live comfortably in Melbourne (but elsewhere in Australia you can do OK on 48k), and besides, Melbourne's infrastructure is way underdone. I'd dust off my shoes and move town, if possible.
Comment by Justin on 28 January 2010:
All very funny, in fact so funny I wish I could say I'd thought of it myself.
Comment by Pete on 28 January 2010:
No Interest: "...one debt my wifes car $140pw" . Mate, Dan is right... you cannot _afford_ to live in Melbourne.
While Dan and I disagree on many things, he's got that one completely correct. You want a house? Sell the car.
Can't figure out what a FHB is doing on an investors' site... let alone in a property investors' blog, No Interest... .
Just a frequent lurker, eh, Prozak?
Comment by Matto on 28 January 2010:
No Interest, im a couple of years older than you and have been in your situation. the key is to start low and build up. its nice to buy the 'average house' but i think its pretty unrealistic for a first home owner.
get something cheap and work your arse off to fix it up, get a bit of a bigger deposit together etc.
alternatively if that is not the kind of thing you are into and want to walk straight into a decent house with nothing to do you'll need to spend some time and money increasing your skills & lifting your income.
either that or move. i cant work out why people live in melbourne anyway.
Comment by No interest on 28 January 2010:
Not that i want to sprout things that are TO personal and i won't delve into this but as i alluded to in my 2nd post i have a medical conditions that requires me to be close to Melb, my specialists and teatment facilities. Selling our car and moving to the fringes complicates this to no end and giving up the only car we have just in the hope i can have an over inflated house price/mortgage doesnt seem to be the solution either
We would then have to buy 2 cars because i have trouble walking for long distances public transport could be a nightmare from lets say Berwick or Kilsyth to the city.
I also don't want my kids to grow up in low social and economical area's, i did and it was one of the most painful uprbingings. Surrounded by people you (and everyone there) fear in a house thats decades old in an area you hate becuase it is so far away from family, friends, work etc. Only to realise you are stuck thee for the next 25 years becuase even these area's are $350,000+
Very easy to make this generalised statements but Matto i highly doubt you moved to the fringes and sacrificed all you had, living on bread and water to survive and if you di, all for just some dirt and bricks and the ability to say i own a home.....ah mortgage then i am saddened you would want others to do the same.
I need to be in Melbourne and so does my soon to be family, why should we have to move because investors are driving an already heated market.
Any way, we have lost the point of what i was hinting at and no one has managed to tell me how on my average wage i can afford the average house.................
Comment by Pete on 28 January 2010:
Matto, 28/01/10: "...the key is to start low and build up. Its nice to buy the 'average house' but I think its pretty unrealistic for a first home owner."
Spot on, Matto. Our family could not afford to buy in Perth thirty two years ago. We commuted into the city. Nor could we afford a new car.
I expect another new DRA article prophesying the collapse of the Australian property market(s) within a few days, as interest rates rise. While I understand that this is the line DRA _has_ to take, it would be foolish to take comfort or hope from any such prediction. The Perth median price has just jumped 8.7% for example. That's a lot faster than you can save (especially after taxes).
Matto's counsel: "...get something cheap and work your arse off to fix it up..." is a good plan. Been there... .
In conclusion, whacking Ned for posts he hasn't written is a bit rich. Personally, I don't mind you blistering me, even for crap others have written. Seething with anger? Direct it here... .
Comment by No interest on 28 January 2010:
And Dan just in case you havent noticed buying a car on loan isn't something only Gen y's do, what was unique though is we had a $5,000 deposit purchased second hand and did the loan over 3 years at 8.3 %.
May not impress you all that much but in todays reckless spennding frameworks and habits i thought we were being more sensible than most. The fact that you feel we can detach ourselves from everyday life and become almost twice removed from everything that this worlds has come to rely on is surprising and i would ove to see those who say this is so easy DO IT.
Anyway lets say i take your advice, how long would it be in this scenario before i can manage to own that average house price in Melbourne? Assuming i saved the difference of course and not spent it on something reckless as us gen y's generally do
Comment by Dan on 28 January 2010:
Well you simply can't afford the average 3 bedroom house - you might afford half of one though. Refugees over the past few generations were faced with even bigger challenges - bigger families, their qualifications not recognised, and having to work as underpaid labourers. In those days families shared houses, pooled costs, etc. It's cheaper to feed 6 people out of one kitchen than to feed 6 out of two separate kitchens. I know plenty of single child families who are living in with their parents and sharing living costs. What's so bad about that?
You also can't afford to have silly debts like a car debt. You are better off with 10k savings and no debt on your car. Avoid finance, credit cards etc. whenever possible, and plan for double the current interest rates when going for a mortgage.
But I agree with what you're hinting at. Melbourne is going backwards in that it's pushing nonetheless capable and hard working people towards poverty by its high cost of living. From a town planning perspective it's a city that is failing. There is no way that house prices will be sustained in this way in the longer term in Melbourne's vast suburbia without some big changes.
Comment by Dan on 28 January 2010:
Well, with respect to cars, we saved up and bought a second hand diesel 4x4 at what is today 10k, fully self maintained it etc, which got us about 5 years trouble free use. So it was about $2k per annum to own the thing, less what we sold it for (about 5k). We saved a packet doing that. We rented at what is today about $300/wk, but had no TV, all furniture from St. Vinnie's, cloth nappies and all of that. Holidays were basically national parks and free camping, which gave us a chance to see other towns and see what job opportunities were about. But when time came to buy a house we waited until we could get out of the capital city.
We earnt more than today's 48k equivalent, but our budget was tight and we lived like we were earning less than 48k. Help from others made a big difference also, but there were times when this was practically absent, for various good reasons.
Comment by No interest on 28 January 2010:
Oh and to finish off Pete, when you purchased you did so at 3-4 times your annual salary at the time. A mean feet as you have stated with what would be considered reasonable sacrifice.
Your asking me to go to the fringes and still be nearly 7 times my yearly income and lets not talk about combined income as this is irrlelevant. We would like the option of my wife being able to raise our kids not a creche, the same options you had when in the same position before you realised you had inadvertantly and by default mind you, purchased the fastest growing asset on the planet and changed your mind on what housing is for (wealth not a home)
Comment by michael on 28 January 2010:
It's sad the hairshirt brigade are telling young people to get rid of their supposed "indulgent" habits, and buckle down to buy a house. It's all a total crock - housing in the cities is unafforable for 85% of single wage earners, and most working people I know who rent will never be able to buy a house. It's just plain sick ...
Comment by Ned S on 28 January 2010:
I have been accused of "Revelling in the misery " my "generation has caused others" ... So a couple of online dictionary definitions of misery follow:
* intense unhappiness, discomfort, or suffering; wretchedness
* squalid or poverty-stricken conditions
And if by "others" No interest is including him and his in those "others" (which I do assume?), then having read his synopsis of his current life situation, then sorry mate, the plea is definitely Not Guilty.
And you obviously can't be serious about wanting me to crunch your personal financial figures No interest ... What did your last slave die of? Don't think so!
Maybe you actually do end up buying an apartment in town rather than a house in the outer suburbs? But I'd hardly call that "misery". Do you?
Comment by Pete on 28 January 2010:
Our cars? 89 Honda; 90 Toyota; 91 Magna; 92 Magna. All running perfectly. Nothing worth over $2K. Very low insurance. Service them ourselves. Our bikes? 86 Honda, 87 Honda, 92 Honda. Service them ourselves. Belong to the RAC in case there's an issue we can't fix on-road.
Have to laugh at a post two years ago, in which Bubblefeet Pete derided realtors because they weren't driving the latest models. Puts everything into perspective.
Comment by Dan on 28 January 2010:
I don't think anyone is pleased about the fact that wages in Australia are so pathetic that nobody can afford a house (or that houses are so expensive.. whichever way you look at it). But when we worked for some charities in Melbourne a few years ago it was striking to see homeless late-teens and early twenties people walking around, not in rags, but in fashion-label clothing, talking incessantly on their mobile phones, smoking, drinking, and buying junk food. They did _not) )one_ _thing_ that was even remotely efficient, or that would help them get out of the rut.
The first step to getting out of the crap life that low wages gives you is to make those wages go further. Expecting others to fix it just won't happen - it's like the economy as a whole - unless there is internal structural change, no amount of bailouts will fix anything.
Comment by Pete on 28 January 2010:
No Interest, your wife is working. Mine wasn't. You have a double income.
Clearly the decision to have children young was planned. Had my first child at 36, when I could afford to raise one.
It's all about decisions, isn't it? It's what I like about Oz. Freedom to move, relocate, plan and _prioritise_.
Or you can gamble.
And that's the problem. The trouble is that so many were misled by academics, whose mountain-top promises gulled young Aussies into believe in a 40% discount. and rejecting a $21K gift.
You could legally live in the thing for just six months(!) then rent it... ! Gawd, I wished I was a FHB... !!
You can respond that I'm gambling too. There's you're comeback... .
Comment by Matto on 28 January 2010:
Youre in a different situation to me No Interest but yeah, i bought shit. i cant even tell you how bad one place was. i dealt with the dirtiest filth imaginable. putting holes in the walls to find the rats nests was nothing compared to getting the sewer/drainage system functioning again. basically thats the path i chose, there was no way but up from there but i understand thats not a path everyone can go down (it does work though).
my only advice is to keep saving and look for ways to lift your skills/training/income. thats the other path.
who knows, im not really a property bull from the price levels we are at now anyway.
perhaps finding a lower socio-economic area on the verge of gentrification is a possibility. theres lots of websites and publications that try to find these areas.
Comment by Matto on 28 January 2010:
Oops - i put a swear word in. i'll repost without the swearing
Youre in a different situation to me No Interest but yeah, i bought 'rundown'. i cant even tell you how bad one place was. i dealt with the dirtiest filth imaginable. putting holes in the walls to find the rats nests was nothing compared to getting the sewer/drainage system functioning again. basically thats the path i chose, there was no way but up from there but i understand thats not a path everyone can go down (it does work though).
my only advice is to keep saving and look for ways to lift your skills/training/income. thats the other path.
who knows, im not really a property bull from the price levels we are at now anyway.
perhaps finding a lower socio-economic area on the verge of gentrification is a possibility. theres lots of websites and publications that try to find these areas.
I also sold my car and bought a $2,000 87 model econovan, using the difference for a deposit. definately made some sacrifices (its a struggle to keep the thing on the road now and i know i cant drive too far in it)
Comment by Pete on 28 January 2010:
Matto, 28/01/10: " ...im not really a property bull from the price levels we are at now..."
Sorry about this, but I am! Mind you, it's a different scene over here in the West. I probably wouldn't consider Melbourne. Or Sydney. WA is hopelessly cheap... and we're about to lift off.
Just had a personal letter from a realtor. He has three buyers "... interested in your street... " That's a street in which we have three houses. He has buyers waiting. They'll pay $400K, $420K and $450K. The homes exactly fit their criteria. I suspect a least one is a tenant. So I phone him. "How much is your commission?" said I. "17.5K on $400K" he responded. Go figure. He has the buyers. He has the seller. He wants $17.5K to draw up papers. No sale!!
Comment by Don on 28 January 2010:
Time to change the name of this site from DRA to Pete, Dan and Ned's fishing hole. Fzzzzzzzzz there goes another one! Reel it in boys....
Comment by No interest on 28 January 2010:
Matto i have to thank you for being the only one that realises that it is a struggle and for offering a ray of hope rather than standing on the top of the supreme tower of home ownership and thumbing your nose at anyone who is beneath you (e.g. Ned S, Pete)
The rality is though NO ONE can take my example leaving out the health issues, because other than this my scenario is pretty normal and by using the merely rational parametres i gave tell me how i can afford a median house in Melbourne..........................
If the answer is that i can't then i think we all may come to the realisation that this goose is cooked
Or on the other hand the outer fringe of Melbourne, which in case you haven't noticed used to be zoned as RURAL 8 years ago, will gor and grow and soon i could afford to live in affordable suburbs like Bonnie Doon or Daylesford
Comment by Davo on 28 January 2010:
No interest - feel for all young people who can't get into owning their own homes. I have 2 teenagers, both still at school, and unless they get better than average jobs, they will also struggle in years to come. The Gen X' S and Y's may need a "leg up" from us baby boomers, if we can afford it.
That's what caring for your family is about.
Our first home in Brisbane cost us $70K in 1988, pre-kids, and our combined gross income was around $55K, so affordability was there. But its was a 10 square fibro shack, hot as hades in summer and cold in winter. Thankfully, Brisbane doesn't get too many extremes. We were able to trade up over time by buying and selling, doing some work ourselves to improve the property and taking advantage of the market.
It won't be easy for your generation or ones that follow.
Comment by michael on 28 January 2010:
"And that's the problem. The trouble is that so many were misled by academics, whose mountain-top promises gulled young Aussies into believe in a 40% discount. and rejecting a $21K gift.
You could legally live in the thing for just six months(!) then rent it... ! Gawd, I wished I was a FHB... !! "
You really think that most young aspirant home buyers even know who Steven Keen is? They don''t. Seems in fact there was a rush to the FHB grant - most of those out of the market simply don't have the deposit or the income to service a mortgage when an average home in an average outer suburb in Brisbane is now over 400K. There is a major structural problem that policy makers don't want to look at ...
Comment by Matto on 28 January 2010:
No Interest - im in SE qld so i dont really know the melbourne market but my sister lives down your way and was asking about buying a unit. i couldnt really give her much help because the suburbs she liked started from $400,000 for a real bad 2 brm (northern suburbs) and she didnt want to live somewhere that was cheaper and had the scope to move up a bit.
another alternative is to rent where you want to live and invest elsewhere but that takes a fair bit of planning and commitment. the goose could well be cooked for melbourne but id say that as long as the banks are willing to lend the prices arent about to plummet. theres (almost) always someone willing to take a 5 year interest only with little consideration for actually paying it off.
Pete - i dont know what the market is going to do, i do think there are compelling arguments to buy specific properties in specific regions but i dont know if say a place like melbourne can keep storming on from here. if i was looking for a place to buy now there'd have to be a distinct reason to purchase that one place and try to fix it up etc, then maybe keep, maybe sell. i could find places id want to buy now for the chance to make some money but i doubt id like to buy the average house, move on in and just wait for something to happen... if you know what i mean.
im sure in 10-15 years prices will be up especially from inflation but i worry about our chance of a global hiccup getting in the way between now and then.
Comment by Matto on 28 January 2010:
anyway i think housing is so tied up at the moment that the average person isnt going to have a shot at the average house. you really have to work harder then the rest if you're chasing a scarce resource. keep studying, investing or renovating,,, or all 3.
Comment by Bertie on 28 January 2010:
There is some intelligent discussion of Aussie house prices out there, believe it or not, the arguments put forward are hard to dispute
http://www.youtube.com/watch?v=oHg5SJYRHA0
Comment by Matto on 28 January 2010:
hmmm interesting argument bertie.
did you give yourself 5 stars?
Comment by Pete on 28 January 2010:
Matto, 28/01/10: "i worry about our chance of a global hiccup getting in the way between now and then."
It's predictable, Matto. Anyone who only as one timeline over a three-to-seven year period may be affected.
Michael, 28/01/10: "You really think that most young aspirant home buyers even know who Steven Keen is? They don''t." I agree he'll soon be forgotten, Mike. But the culture won't be. There were too many Keens, Karans, HaHas, Louise Hs, Greg-of-Brizzies, Barefoot Investors, Brett-of-Geo-Cities and yes, Bubblefeet Petes, to ignore the Sky-is-Falling scenarios screamed from our TVs, newspapers and websites. I suspect that probably 30% of contributors here bought that line.
Let's face it: This is an investment site. This is a Property Investment blog. If the bears are gathered here to talk the market(s) down, against a steadily rising trend in a very low interest rate environment, this is the wrong place to be. If they're furious because the KeenKaranKloneKlan got it wrong, this is a forum which must just bring them unnecessary grief. Why put yourselves through this pain? Your claimed misery and poverty in Australia are laughable. Can you imagine the tsunami south to Oz if we allowed all the teeming hordes to our north to emigrate? (Boat people? A mere drop in the water... .)
Comment by Bertie on 28 January 2010:
Matto, you're worth 5 stars and a thumbs
I think at this stage something more serious is needed in this debate
http://www.youtube.com/watch?v=J---aiyznGQ
Comment by Matto on 28 January 2010:
Bertie, you were always my favourite beatle.
Comment by Pete on 28 January 2010:
You have my symphony, Bertie. When you're taken _seriously_ you'll lose your rating rights!!
The other day, when Steven was shouting "You lose! I win again!! " and other garbled screams of victory, I nearly posted this:
http://www.youtube.com/watch?v=2eMkth8FWno
I decided not to, but now, considering the 'uppercut' doled out, I think I will!
(I'd be carefully embarking from Mascot, Sydneysiders. One particular baggage handler is in a Black Mood.)
Comment by Dan on 28 January 2010:
Hmm, which one's the black knight?
Comment by Ned S on 28 January 2010:
We have a growing population. And one can only fit so many houses with decent sized blocks of land within X km (or Y minutes; or Z dollars travel cost) of the centre of Melbourne. And while with apartments, the sky is the limit so to speak, at least some Aussies figure apartments aren't what they want. And reason along the lines that as the boomers got to buy a house on a decent sized block of land within X km (or Y minutes; or Z dollars travel cost)of the city centre, for Q multiple of their wage, they should/will(?) get to as well. Is that putting it too simplistically?
Comment by Pete on 28 January 2010:
The Black Knight? Tone in the Black Mood. The one who's punch-drunk, still swinging, but relatively armless. The one who has screamed a few times at me, over the years "I WIN!! YOU LOSE! Come back and fight." (You'd scarcely know the years have passed... he's hardly grown at all. In fact, he's shorter in stature throwing left hooks and uppercuts online. Childish rants do not a domicile create!
)
Comment by Pete on 28 January 2010:
Sorry, got that wrong. It should be: "I WIN!! YOU LOOSE! Come back and fight."
Comment by Dan on 28 January 2010:
Ah so he's a murkin?
Comment by Pete on 28 January 2010:
Ned, surely you're not suggesting it's all to do with 'Location, location, location' (?)
As time passes and our population rises, this old truism will haunt those who missed the change in tides... missed the boat completely; far too busy deriding FHOs who scrambled to get on board.
Comment by Ned S on 28 January 2010:
Far be it from me to attempt to state the obvious Biker - It doesn't seem to be a particulary great strategy for winning friends and influencing people on Oz property blogs.
Comment by Steve on 28 January 2010:
Pete honestly you talk sh1t
Comment by Matto on 28 January 2010:
so have we decided prices are going up, down or sideways??
ive gotten involved in 3 properties, (all renos), and am selling out of 1 to hedge my bets. my game plan at the moment i guess is to look into more renos but only hold 2 places long term, i'll use the money from other renos to pay down debt and have a few holidays. least then if it all goes belly up i got to have some cool holidays.
Comment by Pete on 28 January 2010:
Might have been in Casanova's time; but he's more pawn-like than porn-like. Steven is just an angry young bloke who knows what he wants.. and he wants it NOW. Doesn't seem to be as much flexibility in the young these days. I'd blame my generation for not teaching them patience and resilience, but many of us taught our kids these character-building traits the most effective way... by example... just as our parents modelled the same behaviours for us.
In life, things don't always go the way we want. When our kids occasionally pulled a tantrum, we'd leave them in their room to reflect on the matter. Perhaps Steven (24) has been left in his room too long. There's no real challenge to become independent when the cocoon is too warm and amniotic. It's just too easy to bitch when things don't fall right into your lap. His flights to physical violence online aren't a good sign. Unresolved anger means his future doesn't look too good... . Mix it with a little too much alcohol and his wish for free accommodation may be a self-fulfilling prophecy... .
Comment by Pete on 28 January 2010:
Steven 28/01/10: "Pete honestly you talk sh1t"
Heard you. Now stop kicking the door, Steven.
Comment by Steve on 28 January 2010:
Heard you. Now stop kicking the door, Steven.
No you are the one who mentioned my name, so you are the one knocking on the door
Pete if you had worked as hard as I have when you were my age the FACTS ARE YOU WOULD HAVE HAD EVERYTHING by then that I don't have now
All I want is a fair go, but you and your type have denied me that FACT
Flexible???
I never wanted a mcmansion Pete, a simple 1 bedroom unit in a half decent suburb would be nice, but I can't even have that
Comment by Biker Pete on 28 January 2010:
Steven, 28/01'10: "...a simple 1 bedroom unit in a half decent suburb would be nice, but I can't even have that..."
Ned found you one, Steven. You abused him for it. You have well over $100K deposit, Steve. Go for it.*
Steven, 28/01/'10: "...you are the one who mentioned my name, so you are the one knocking on the door..."
No, you threw a punch... missed... and got called for it. Funny thing about online punches. You've thrown quite a few and not one has connected.
(You're no Cassius Clay, son. What are you gonna do next(?)... bleed on me?!)
* You don't want a McMansion? We must have been misled by the Springfield link you sent. Be honest, now, Steve. It's what you really, really, really, really, really want, isn't it?!
Comment by Steve on 28 January 2010:
coming to conclusions once again I see you are good at that aren't you
When did I ever say I wanted something similar to that mansion???
(knockout punch)
I was comparing it to what you could by for a similar price here
When did I say I wanted something like that?????
(knockout punch)
I know you too well Pete, you are not going to answer this question, you will try to SPIN your response Too EASY
All my punches have knocked you out every single one thats why you are flyweight
Comment by Biker Pete on 28 January 2010:
Steven, 28/01'10:" ...(knockout punch); (knockout punch); All my punches have knocked you out every single one thats why you are flyweight..."
Mate, you are a silly, angry (and probably very violent) little kid. Stay in your room until you've stopped playing air guitar with your fists. You can pay for any damage you do to the door.
Comment by Steve on 28 January 2010:
yep you see completely ignored the question. Once again (knockout punch)
Comment by Pete on 28 January 2010:
Steven, who raised you? Men don't need to SHOUT... nor do they need to blindly throw punches at their computer screens or televisions if someone has an opposing view. It's infantile behaviour. Infantile.
We can learn a lot of about people by what they _do_ ... in fact, I believe we can learn more about them by watching what they _do_ rather than what they _say_. Had you sent us all a link to a one-bedroom unit in Springfield, for $200K... and then another for $500K in Sydney, you might have convinced me. I don't blame you for punching the air, son. You were sucker-punched by a publicity-seeking academic... and now you're blaming everyone but yourself. You were eligible for a FHOG and you ducked that one. No wonder your arms and mouth are working overtime... .
Comment by Ned S on 28 January 2010:
Matto said: "so have we decided prices are going up, down or sideways??"
I've given up making predictions. As my most recent claim to fame is that when my best mate asked me what I thought of buying a full-on negatively geared investment type property in Melbourne maybe 9 months ago, I opined: "Sounds risky; I'd wait!" ... With mates like me, who needs enemies as they say!
Leaving my own home out of any calcs, I'm maybe 60% property and 40% cash at the moment? But looking at poking my head back up out of the hole and putting maybe half of the cash into property this year. Which is not a recommendation! Just a statement of what I'm currently considering doing given my own circumstances. (And unlike many(?), I don't have significant income to negative gear against and have minimal fondness for mortgages.)
Comment by Dan on 28 January 2010:
Cash is no good IMO except to cover emergencies and day to day stuff. Best invested, practically all the time, albeit carefully. Even precious metal is probably better if you can't decide on anything else.
Comment by Steve on 28 January 2010:
Pete maybe you could have looked at it in this way I could have been comparing an average looking house here to a similar priced property over there,
but no you jumped to the conclusion THAT I WANT A MANSION, maybe I wanted the average looking Australian house????
but even that would be jumping to conclusions too, because as I said I would be happy with a 1 bedroom unit in a half decent suburb.
just because I was comparing 2 things doesn't mean I want it.
Comment by Pete on 28 January 2010:
Matto said: "So have we decided prices are going up, down or sideways??"
Starting the next house, ASAP, so, considering my old adage about doing rather than talking, I'd have to be very confident about WA. Over a year ago, I suggested that after any realty plateau in the past, things had gone ballistic. I now fear I might have been a little too conservative.
Dan said: "Cash is no good IMO except to cover emergencies"
It's also useful in offset accounts, Dan... or as main income against which to negatively gear. If you're getting 6.8% in the bank and have a few properties (as a very close relative has
) cash is OK... . If there's one piece of advice I can give the young, it would be to consider offset accounts working against loans. Our main bank will only allow eight of these... so we've had to go to a second lender, to run a few more... .
The benefits? Reduced interest, available cash, no tax on it... .
Comment by Ned S on 28 January 2010:
Don't know if Mascot is a half decent suburb on not Steven - But as Biker says, I did point you in the direction of a 1 bedroom unit there for $267k not that long back at all. Given my assumption it would be convenient for your work. And the fact it certainly sounded extremely affordable given other info you'd provided on your general financial situation: $100k deposit; Above average wage etc.
Comment by Ned S on 28 January 2010:
Fundamental difference between you and me Biker - You work on credit. I work on cash. Given that the RBA targets a positive inflation rate (all central banks do) my strategy that dates back to Great Depression I days hasn't been nearly as flash as yours. Such is life; We live and learn - Some info for when next I do get some Oz employment income to negatively gear against perhaps? ...
Comment by Dan on 28 January 2010:
Cash in an offset account is not money, it's a balance of what you can borrow against the asset. It looks like money, and you can spend it, but all you are doing is borrowing at the rate of interest of your loan. Offset accounts are good but they do not represent positive value - only less debt.
Comment by Steve on 28 January 2010:
what state are you from Ned???
Mascot is a working class suburb, but I think that is too much money to be honest an average house should cost less than that, it really is too much.
I dont think its affordable at all.
Comment by Ned S on 28 January 2010:
Got to admit Biker, I've given your offest strategy a bit of thought. And couldn't see the particular advantage - Outside of giving you leverage perhaps. BUT, did also have the thought that if the dirt you are building on isn't that dear, and the new houses you are building are, the 2.5% pa depreciation just could pop up in the calc as being handy? But never got the calcs finished with all the We hate Oz property Investors that have ruined our lives type noise since.
Comment by Ned S on 28 January 2010:
I'm in Brisbane Steve - Also live in a working class suburb - About 25 km from town. A 1958 timber fixer upper that I haven't got around to fixing up yet.
Comment by Pete on 28 January 2010:
Offsets: Huge advantages if you get the mix right. Dan thinks they aren't cash. They sure look and smell like money to me!
Comment by Pete on 28 January 2010:
Ned, 28/01/10: "... also have the thought that if the dirt you are building on isn't that dear, and the new houses you are building are, the 2.5% pa depreciation just could pop up in the calc as being handy..."
Ned, we actually got the tax situation slightly wrong last year... . Whacking huge amounts into salpack and, with the large number of tax claim write-offs we have, we actually created a situation where we had a little too much to write off. I could tell you the outcome of that situation, but the online retching which would follow is not something we'd all want to hear for several days.
Yes, land is cheap(er) in WA. And Keen scared a sufficient number of Aussies spitless for us to pick up two nice blocks at gift prices during that brief plateau.
Depreciation is up to 20% on some items... and it isn't just depreciation which provides write-offs, Ned. We don't even claim capital depreciation of 2.5% on some homes... particularly the ones most likely to sell first. We don't need the write-off... and it counts against you at sale. We do keep excellent documentation of every item, including log books for travel. My missus is more knowledgeable than any FA we've met so far... runs _rings_ around them. Our tax accountant is brilliant, though. Honest as the day is long (videotapes all clients' interviews!) and works his butt off for his customers.
Could write a book about what we've learned... generally through trial-and-error. Saved over $6K on a project today... .
Comment by Ned S on 28 January 2010:
I'll ask my bean counter about them then Biker - As some of this stuff with all the never ending government fiddles definitely DOES get a bit hard on my head - Ta again!
Comment by Pete on 28 January 2010:
Steve, 28/01/'10 "...that is too much money to be honest an average house should cost less than that, it really is too much." So, to be fair, it isn't 'can't', it's 'won't', Steven(?)
Where I'd differ, Ned, is that I'd counsel Steve to put 15% deposit on that unit (or another) with the rest in an offset account, from which payments are taken. Had he taken the $14K, he'd be laughing now.
(I'm still reeling from his last KNOCKOUT PUNCH, so my thoughts may be adrift. As a silly old biker I don't know all that much about EEKanomics, so I'm always open to positive suggestions about how to get ahead.
)
Comment by Ned S on 28 January 2010:
The one that I find really perverse at the moment is that the moment I take an Oz job which brings in more than 10% of my yearly income, the super I get from that job is all the super I can get a tax break on. These lads definitely know how to discourage a bloke from working as an employee in this country.
Comment by Biker Pete on 28 January 2010:
I'd be looking for a job which gives access to salary packaging, Ned. The first benefit is that whatever you invest in, within super, you can add 15% profit to it. Remember too, that at 55, you get access to a TTR pension, tax-free, on top of your salary... . And at that point your super is also working for you in a tax-free environment.
I can't think of any single government initiative which has encouraged older employees to stay in the workforce, which competes with TTR. Yes, there were a couple of other benefits in our tax situation last year, but _nothing_ comes close to Transition-to-Retirement. Just can't stop grinning... .
Comment by Ned S on 28 January 2010:
It's a "working class" thing maybe Biker? Where we just don't understand all the tax fiddles etc that are on offer. And have this puritanical urge to rail against them and say "That's NOT Fair!" when we do get a wee sniff that that's how it works. Including the storey that central banks are "inflation fighters" that "try" to preserve the value of our money; When the fact is that central banks specifically try to do the exact opposite - But just not so quick that "we" actually wise up!
Comment by Ned S on 28 January 2010:
I've had that thought mate - But suspected that my parting question of "Can I salpack 100%" just might not be a winner in an employer's eyes? But who's to know - Maybe they'll say This boy wasn't born yesterday! Geez, he could maybe even be useful around the place some day? ...
Ahhh ... Rock on the KHR!
Comment by Pete on 28 January 2010:
Well, they're legal, not 'fiddles', Ned. I only recently read the 'Rich Dad, Poor Dad' series, at friends' homes in Canada... and although I found aspects of it all disconcerting*, I did recognise that the first twenty years of my working life, I was fairly ignorant of the many claims I might have legally made.
What astounds me is that our sons figured out their tax benefits without us telling them. That's not just the power of the internet (information IS money) but their realisation that we do all pay an immense amount of tax. Maybe because they were raised in a culture where little went to waste, where recycling (including our cars) is a way of life, where work of any kind is valued. And maybe it IS a cultural thing. Walking down a Vancouver street with a woman who is a multimillionaire (and we're talking _hundreds_ of millions here) we had to smile when she paused, stooped and picked up a one-cent coin. I'd have done so, but this gal has well over twenty times our assets...!
Remember my missus and I will get no pensions or concessions at retirement. On that basis we have no issues whatsoever about claiming our legal tax entitlements, Ned.
* I have to wonder how many Americans were caught out by Kiyosaki's leveraging suggestions. Millions?
Comment by Pete on 28 January 2010:
Most you can salpack is $50K if you're over 50, Ned. That includes your employer's contribution. $25K if under 50.
We were salpacking 75% each, then switched to 70% when tax levels changed, then cut back to $50K each p.a.
Cutting back again, now we've seen our accountant. Just don't need it, now... .
Comment by Dan on 28 January 2010:
I agree with Pete. The tax system is nuts, but it's really just a game. Exploring the tax office website is worth the boredom - the education is useful, and if you can find legal ways of doing clever things, well then you've simply discovered what (probably) others are already doing - just that it was not announced on morning TV.
I learnt, for example, that you don't even need to live in a house for any longer than the time it takes to get a postal address there in your name, maybe a phone connected, etc to say you lived there (could be as short as a month), and then you can rent it out as your primary dwelling for as long as 6 years (and longer if you live in it now and again in between) and not pay CGT on sale (of course you should check with the ATO/accountant first). Nice use of the FHOG indeed, especially if thereafter you go back and live with your parents for a while and pay them a bit of rent, plus travel around for work - nothing saying you can't as far as I can tell.
I also think that offset accounts are a good idea because you can pay off your mortgage sooner without incurring fees, and avoid having to go to the bank for the next purchase. While it feels like having a 'savings' account (paying the variable mortgage rate) it's just principal off the loan, so it's virtual money (if you understand that money issued in a loan is merely based on a promisory note ... if not, read about it and learn).
Comment by SteveG on 28 January 2010:
"Walking down a Vancouver street with a woman who is a multimillionaire (and we're talking _hundreds_ of millions here) we had to smile when she paused, stooped and picked up a one-cent coin."
Hahahaha. Classic. You do spin the darndest stories (Ned/Pete).
Comment by Biker Pete on 28 January 2010:
And, don't forget, Dan... the banks _love_ offsets. You lower their risk. It reduces _your_ risk, too.
Yes, ignorance kept many from receiving a government gift. The excuses were: a.) I'm ideologically opposed to handouts (Jeez, _I_ never got one in my life!); b.) They'll push prices up (prices were going to go up, anyway!); c.) I don't want _anything_ Labor is offering (OK, cut off ya nose to spite ya face!); d.) Prices will fall. Everyone says so. (George Soros: "Spot the lie and bet against it.")
To divert: Soros is invested in lithium. So is Buffett. But we're not (yet). Full 'electrics' appear to 'die' after five years. Expensive battery replacement. The Tesla is in doubt!
Any views on lithium? My son the doctor (very Jewish... haha) says forget lithium. Technology will leapfrog it... . We're going solar, despite this. What are your views, if any?
Comment by Biker Pete on 28 January 2010:
It's a precise indictment of your values that you either a.) doubt the story is true; or b.) smirk at the values of the woman involved, SteveG. What's even more amusing is that you believe Ned and I are the same poisson. We're very different fish. I admire Ned's patience, ability to compromise; and his ability to forgive the worst kind of crap fed up by The Bears.
I've no such forgiveness or compassion. From DRA's first day, I've given public gratitude to an asset class which ensures our family lives in comfort and freedom for the rest of our lives. Vacuum it up and digest it, son!
Comment by SteveG on 28 January 2010:
Please don't take offense, Pete - I'm a big fan of your work. The quality of the stuff you come up with is gold.
Getting back off-topic, if I was you, I'd be listening to your son's advice on lithium. He's a (Jewish) doctor afterall. Brilliant!
Comment by Pete on 28 January 2010:
Rack off SteveG. If I needed more fanboys i'd move back in with Ned.
Comment by Biker Pete on 28 January 2010:
Thought you'd confuse the cultural cliche, SteveG. We're no more Jewish than you're solvent if you're a Bullion Bull. But feel feel free to work the racial slur if you feel it's good for a laugh.
Comment by Biker Pete on 28 January 2010:
And the Boogey Boy is back. Use a handkerchief, Son.
Comment by SteveG on 28 January 2010:
You used to live with Ned? I just had a vision of "The Odd Couple".
You guys really are a couple of characters. Where's Ned? Bring Ned back, Pete.
Comment by Pete on 28 January 2010:
SteveG, Pill-boy is playing a prank on me.
My son Ned is out back skinnin' some rabbits.
I'd really like to have you as my biggest fan. Like some stew mate?
Comment by SteveG on 28 January 2010:
To be honest, Pete, I wouldn't feel safe. I'll just watch your side-show from here, mate.
Comment by Biker Pete on 29 January 2010:
OK, got it, SteveG/Prozac. Took a while. Happy to amuse you, son...
Comment by Dan on 29 January 2010:
Biker, solid state fuel cells are not a sure thing. No good for cars at the moment (not without several hundred million spent in research IMO) and no competition for liquid fuels / combustion engines, at least not for the coming 5-10 years. You'll have a long lead time before the shares sky-rocket, but it's still a better buy than some never-before-head-of drug (most of those die a quick death).
Read here: http://hardware.slashdot.org/story/10/01/27/2318247/Lithium-Air-Batteries-Get-Boost-From-IBM-and-DOE
Read the commentary especially. I think the idea is reasonable and a fair bet, but it's probably 60% success probability (I think hydrogen fuels might eventually win out). Lithium will hang around for a while anyway, as it has uses outside of cars which will continue. But if they do go for the air lithium fuel cell, then you'll strike it rich.
Comment by Dan on 29 January 2010:
I should say the lithium air battery is not a fuel cell
But hopefully you got my drift.
Comment by Biker Pete on 29 January 2010:
Thanks, Dan. Found the feedback which followed the article almost as useful as the article itself. "I think hydrogen fuels might eventually win out." Yes, that was also our son's belief. His real concern is longevity of the existing Li-ion batteries and the expense of replacing 6800 cells after five years. Not cheap, so you've got to wonder about the 'savings'... .
Comment by Dan on 29 January 2010:
Yeah it kind of looks like they made the Prius as a practical joke, a bit like Picasso painting garbage cubism to poke fun at rich socialists, who to this day still can't see the joke.
Comment by Dan on 29 January 2010:
Incidentally: "Lithium is plentiful, you can mine it from seawater indefinitely for about $60 per kg. It's just that some countries can supply lithium at smaller prices."
Lithium is not like gold (unless someone *cough* does to lithium what De Beers has done to diamonds) . So investment ought to be targeted at companies researching how to use the metal effectively, not at miners, because they are likely to be ubiquitous once demand picks up.