By: mentawaisurf
28/10/2009
10:06 am Yahoo! Profile:
mentawaisurf Did this message offend you?
Sign in to report abuse |
Reply to this message |
| The point of my personal example was to emphasize just how much our housing bubble has ballooned out of all proportion. Such a huge jump in prices over the previous 10 year period is simply unsustainable, especially given the record debt burden Australian's already carry. So the key here is not what people are willing to pay, but what they are able to afford (as Professor Hudson stressed while touring Australia recently). |
|
By: hdmausguy
28/10/2009
9:45 am Yahoo! Profile:
hdmausguy Did this message offend you?
Sign in to report abuse |
Reply to this message |
| Thanks for avoiding my question property investors. So I'll answer it for you? When the next great depession hits here in oz. & with massive unemployment & 50% or greater drop in property values and no tenant to pay your rent & perhaps you will lose your job too? The obvious outcome can only be BANKRUPTCY ? A thought too horrible to even comtemplate? |
|
By: ang101000
28/10/2009
9:00 am Yahoo! Profile:
ang101000 Did this message offend you?
Sign in to report abuse |
Reply to this message |
continued
Indeed, the upturn in property prices was accompanied by a sharp increase in loans for home purchases in the Australia. And the deviation of price-to-rent-ratios from their historical averages could mean house prices are overvalued.
Rising debt levels have indeed been a counterpart to the sharp increase in house prices in Australia, with much of the debt secured against home purchases. The increase in debt levels raises household exposure to changes in housing prices, as well as to economic shocks affecting income growth and interest rates.
In Australia, household indebtedness has increased considerably against GDP(see numbers on Keens debt watch).
If this is fueled by an overestimation of income prospects and underestimation of the future debt burden, it could lead to problems. Assumptions about the future based on the exceptionally low interest rates of recent years, plus the atypical house price appreciation, could trigger misalignments.
If increased debt levels and asset price increases indeed fueled consumption in recent years, a correction and balance sheet realignment could lead to a sharp downturn in consumption levels and overall gross domestic product growth. Fortunately, it does not appear to be the case for Australia, where rising house prices and debt accumulation have boosted consumption.
But in some countries (UK, USA) rapid debt accumulation has been associated with weakened balance sheets, fast growth in household spending, and soaring house prices. In these countries, a rise in rates, lower growth, and a correction in house prices could have had severe effects. |
|
By: jaymarcel
28/10/2009
8:53 am Yahoo! Profile:
jaymarcel Did this message offend you?
Sign in to report abuse |
Reply to this message |
| Hi King, so I can answer you correctly what is your statement trying to say as I am just pointing out the pay to mortgage repayment ratio or even the pay to rent ratio is worse in malaysia than it is here in australia |
|
By: jaymarcel
28/10/2009
8:48 am Yahoo! Profile:
jaymarcel Did this message offend you?
Sign in to report abuse |
Reply to this message |
| You have hit the nail on the head there jades, but it doesn't stop them whinging & claiming property is too expensive & how unfair it is. |
|
By: kingat33
28/10/2009
8:44 am Yahoo! Profile:
kingat33 Did this message offend you?
Sign in to report abuse |
Reply to this message |
| jay, dun tell me about malaysia property when apparently u knew nuts about it. Go figure the property price first and let me know what u have discovered. I knew cos many of my clients including myself have invested in malaysia into this make my malaysia second home scheme and would in fact be very attractive to australia pensioners who may consider retiring there with favourable exchange rate and everything is so cheap over there including houses. |
|
By: ang101000
28/10/2009
8:43 am Yahoo! Profile:
ang101000 Did this message offend you?
Sign in to report abuse |
Reply to this message |
Housing market indicators suggest that house prices in Australia are continuing to rise.The gains through this business cycle are not totally unusual, and the boom during the 1980s actually saw even stronger house price increases.
n the long run, property prices move broadly in line with nominal disposable income. But since 1999 the change in residential property prices has exceeded growth in disposable income and crude affordability. The ratio of household disposable income to residential property prices has continuously declined since 1999. This indicates that the change in income may not fully account for the dynamism in house prices observed over the years.
Falling interest rates over the past decade played an important role in demand for residential property. Interest adjusted affordability, ( that is, the ratio of household nominal disposable income to the income that households would need in order to make mortgage payments) has remained relatively stable. Essentially, lower interest rates compensate for slower income growth in explaining residential property price increases.
This also means that "user costs," or the implied costs to housing investors of living in their investment, have declined substantially. Estimates of low user costs are based on assumptions of future housing price increases, which compensate investors beyond the implied "rent" from living in one's own home. But if such estimations are based on the trend line of previous price gains, it creates a calculation with a dangerous self_fulfilling price dynamic.
Not only have interest rates come down but banks also have lowered lending standards since 2000. Banks have narrowed their margins on loans, hiked the loan-to-value ratios, and lengthened the maturity of new loans. All of these moves contributed to the rise in house prices. |
|
By: jadeshangrila
28/10/2009
8:41 am Yahoo! Profile:
jadeshangrila Did this message offend you?
Sign in to report abuse |
Reply to this message |
| Jay, there is plenty of money going into the luxury house market from folks that got it right on the stock market. They have sold out and up graded their houses, like some of my clients. However for the average Joe block there is a house for you as long as one is not picky, there are less expensive suburbs that are still affordable. The problem with some youngster these days is not trying and not wanting second best, or not being able to safe a 20% plus deposit, because they spend most of their pay on going out and having a lifestyle. Once you got your first home you can up grade once you safe enough for a "better" home. As they say different horses for different courses. |
|
By: jaymarcel
28/10/2009
8:17 am Yahoo! Profile:
jaymarcel Did this message offend you?
Sign in to report abuse |
Reply to this message |
| Menta I suggest you look at property prices in KL Malaysia then compare it to the national average wage, the ratio is much more worrying than australias yet with property you get a 9% return. Nobody is talking of a property crash there. Explain those figures |
|
By: jaymarcel
28/10/2009
7:59 am Yahoo! Profile:
jaymarcel Did this message offend you?
Sign in to report abuse |
Reply to this message |
| cxxxx, how did you know what joe jnrs wage would be in 2019? Can you predict what I will be on in 2019 so I can set out a good plan. |
|
By: jaymarcel
28/10/2009
7:55 am Yahoo! Profile:
jaymarcel Did this message offend you?
Sign in to report abuse |
Reply to this message |
| Menta the wise investor can see the true potential of the value of an asset, the real value is what someone is willing to pay |
|
By: jaymarcel
28/10/2009
7:53 am Yahoo! Profile:
jaymarcel Did this message offend you?
Sign in to report abuse |
Reply to this message |
| cxxxx, 'you guys are just braggers' I was just stating some figures, as did the person who stated they had a return of 7%, sometimes on these forums you have to state true life figures from real personal examples rather than copying & pasting from some doom & gloom website with one bias view from sometimes twisted facts & data |
|
By: kingat33
28/10/2009
7:26 am Yahoo! Profile:
kingat33 Did this message offend you?
Sign in to report abuse |
Reply to this message |
| u missed the point al, knew there would be smart donk who would quote out of context and the whole message is, I repeat PRUDENCY not title deed. Dig it? |
|
By: hdmausguy
28/10/2009
1:20 am Yahoo! Profile:
hdmausguy Did this message offend you?
Sign in to report abuse |
Reply to this message |
| A hypothetical question to Australian investors that have properties in OZ. How would you be affected if the much mooted financial meltdown actually eventuated within the next 4 - 5 years? Lets say unemployment reached 30%. Would that not mean that about 30% of mortgages would be under water? Their houses would then parallel the empty house situation in USA, yes? The vacancy rate for rentals would escalate, 30%? Values of properties would plummet, the for sale market would be flooded, all our banks may go under? Tent cities would be a common sight? |
|
By: hdmausguy
28/10/2009
12:56 am Yahoo! Profile:
hdmausguy Did this message offend you?
Sign in to report abuse |
Reply to this message |
| Live within your means TENT ! As a wedding present my mother gave us a marquee tent(my choice) We lived in that tent for a year. Starting debt free incl.vehicle etc. & less than $1k in the bank we hit the road. Over 7 years we worked in central QLD,Mt.Isa,Darwin,central Qld,S E Qld,central Qld. My work was in construction & mining. Wife admin.& Post office. After 1 year went from tent to rented unit,then free co. house.After that it was a variety of accom. rent house,mining & const.cheap housing,own caravan(live/earn /sell it) @ 3 1/2 years invested most of savings into gold shares. 7th year returned to Syd.& bought house for cash debt free. $45% via wages of 7 years work & $55% via stock market 3 1/2 years. With no mortgage debt we could live off just my wage. My wife was able to be at home with the kids & be active in the local community. On you tube recently they showed people in their 40's & 50's in USA sleeping rough in tent cities. In interviews they stated they lost their house due to lost job & payment defaults. So in comparison they started in a house & with debt and are now, by necessity, in a tent . We started in a tent & by choice in our own home without debt. |
|
By: almurrie1@y7mail.com
28/10/2009
12:47 am Yahoo! Profile:
almurrie1@y7mail.com Did this message offend you?
Sign in to report abuse |
Reply to this message |
How long since you bought a house King? The deeds have been electronic these many years, registered on a computer. The old physical deed is worthless, and in fact it can't be stolen and sold out from under you by a thief! I expect the paper contracts for the sale replace it, and a copy of the transaction is provided, but it is not a "deed" as such.
Al |
|
By: ang101000
27/10/2009
10:49 pm Yahoo! Profile:
ang101000 Did this message offend you?
Sign in to report abuse |
Reply to this message |
correction, still can't type,
it should be tend instead of 'tent' and reserch should be 'research' |
|
By: ang101000
27/10/2009
10:47 pm Yahoo! Profile:
ang101000 Did this message offend you?
Sign in to report abuse |
Reply to this message |
Sorry Menta,
You know me, I'm tent to be naughty sometimes. Of course I know what you trying to illustrate with your own housing example.
Seriously, for those who are interested in facts rather than perpetual fictional arguments, I have uploaded an other rather long (112 pages) reserch document to ifile. Please don't bother reading the full document, just pick from the content the bits that may interest you.
So here is the link to 'Sustaining fair shares: the Australian housing system and intergenerational sustainability'
http://ifile.it/75tdhlk or the long link
http://ifile.it/75tdhlk/NRV3_Research_Paper_11.pdf |
|
By: kingat33
27/10/2009
8:43 pm Yahoo! Profile:
kingat33 Did this message offend you?
Sign in to report abuse |
Reply to this message |
| may the king intervene and pardon me for not reading thoroughly each and every post but felt that we should appreciate what menta is trying to do. Menta is advocating prudency and spending within your means. What is so wrong with such wisdom resulting in getting ridiculed at is simply appalling. There's a saying never wear a oversize hat cos it will blind you and the house don't belong to you till it's been fully paid. Talk about title deed, seen yours? |
|
By: ang101000
27/10/2009
6:22 pm Yahoo! Profile:
ang101000 Did this message offend you?
Sign in to report abuse |
Reply to this message |
Menta,
what is your point with your housing example? Is it that you gambled successfully and others should follow your example?
Or you are trying to tell people that property has become so expensive that one needs to save for 10 years for the deposit and than pay off the loan in the next 100 years, which requires a human lifetime of about 130 years...It is all just genetics. |
|
By: davidjtroy
27/10/2009
6:01 pm Yahoo! Profile:
davidjtroy Did this message offend you?
Sign in to report abuse |
Reply to this message |
| Menta, you really have lost the plot. I specifically said that the debt to income ration was skewed becasue it ignored interest and that if you included interest in the equation the comparative ratios would be 33% less extreme. It's simple multiplication so use whatever figures you like and the same thing happens Menta, I would have thought someone supposedly working in currency exchange would have some grasp on maths ;) |
|
By: mentawaisurf
27/10/2009
5:50 pm Yahoo! Profile:
mentawaisurf Did this message offend you?
Sign in to report abuse |
Reply to this message |
And Pete, I'm still waiting for you to run your so-called affordable debt to income ratio on some real figures over the last decade, as posted some weeks ago;
...how about a house purchased for $245,000 in 1998 and then sold for $925,000 in early 2008 (I know these prices well because that's exactly what I did). Calculate your housing affordability theory on these 'real' prices over the 10 year period. If that doesn't scream an almighty housing bubble mania then I don't know what does (hence my easy and happy decision to sell at the time)....
Awaiting your figures to confirm just how affordable housing in Australia has become. |
|
By: ang101000
27/10/2009
5:32 pm Yahoo! Profile:
ang101000 Did this message offend you?
Sign in to report abuse |
Reply to this message |
God, housing/real estate is really an emotional issue!
Please people, think for a second.
I quote Menta
'If Landlord believes 'property ownership' is paying a mortgage to the bank, he is mistaken. If he believes speculation leveraged on the back of equity is property ownership then that is a dangerous definition. Leverage works beautifully on a rising market, but it will destroy you on a falling market.'
Menta was one of the first (on this blog) to start warning about Australia's love with using debt to 'invest' in the to major asset classes: shares and property. Now, you all are aware that private debt in Australia is as high (sorry higher) as it is in USA.
In a laymen language; the more we borrow the more we invest speculating that our investment will increase in (real) value over time.
Given that property is not a productive asset and it is a social issue (ie every human being has basic needs for safety, security and shelter) should we gamble most of our life savings on the future value increase of the most expensive asset that we hold (our home)?
Should there not be an incentive to allow us (everybody) to own our home (make it affordable) sooner and use our savings to invest in productive assets?
I agree with Menta and professor Keen, the increase of credit (deregulation of the banks in the 80-ties) has contributed to the present predicament, ie housing and share market bubbles.
The economic boom and economic growth is largely resulted in higher debt with corresponding high speculative asset prices.
Until there is no incentive to invest in 'real' productive assets such as technology, intellectual property, R&D, innovation etc, we will remain the quarry of the developing world and our debt and lifestyle will be financed by those countries. |
|
By: ecchi.gaijin
27/10/2009
5:13 pm Yahoo! Profile:
ecchi.gaijin Did this message offend you?
Sign in to report abuse |
Reply to this message |
Menta, you seem confused. Price and value are mutually exclusive. "Willing and able" has no relevance to underlying value.
Remind me again wat the "affordable" debt to income ratio is menta? 3:1? So how is 4:1 unaffordable 20 years ago?
I guess you can't teach an old dog new tricks, especially if he only regurgitates what his master tells him to. ;) |
|
By: cxxxx@rocketmail.com
27/10/2009
5:11 pm Yahoo! Profile:
cxxxx@rocketmail.com Did this message offend you?
Sign in to report abuse |
Reply to this message |
| So Menta, the question is: do you really think we'll have a correction? Or will it be slow restoration of long-term parity conditions (requiring increased supply above demand, sustainable emplyment and wage growth, good rates of disposable income etc). Because, from where I sit, many of the key parameters are well and truly out of kilter. |
|
