By: mentawaisurf
27/10/2009
5:50 pm Yahoo! Profile:
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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. |
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By: ang101000
27/10/2009
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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. |
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By: ecchi.gaijin
27/10/2009
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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. ;) |
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By: cxxxx@rocketmail.com
27/10/2009
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| 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. |
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By: landlordcity
27/10/2009
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-Well Landlord, if your not going to sensibly address the title of this post then leave us to our rational (untwistable) discussion about 'where to now?'... because I'm really interested and worried about affordability in this country, in the future; and not particularly interested in your past.-
I would suggest you're not interested in anything much except having a winge. I'll leave you to that... |
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By: cxxxx@rocketmail.com
27/10/2009
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| Well Landlord, if your not going to sensibly address the title of this post then leave us to our rational (untwistable) discussion about 'where to now?'... because I'm really interested and worried about affordability in this country, in the future; and not particularly interested in your past. |
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By: mentawaisurf
27/10/2009
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| You mean willing and 'able' to pay. That is the key when determining the true value of anything. Affordability, in terms of debt to income, will see a housing market correction to rebalance the current gross inequity. |
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By: landlordcity
27/10/2009
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-So I guess you're suggesting new buyers all move to the US.-
Nope, I didn't suggest that. You've either confused me with someone else or been taking lessons on twisting information from Mentawaisurf. |
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By: cxxxx@rocketmail.com
27/10/2009
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| You lost me, but ok - if you say so. So I guess you're suggesting new buyers all move to the US. |
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By: landlordcity
27/10/2009
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-Landlord - maybe you've missed the whole point - affordability: property in Pittsburg has fallen 40%.-
No, my comments are exactly to your point. Population, social and financial dynamics have changed the cost of the property my son bought. They have made the cost lower. I could not have afforded to buy his residence when I was his age. As transportation pressure brings people back into the city, as high tech industries move into space that is was vacated by companies involved in manufacture (which is exactly what is happening now) the cost of his property will probably escalate so that his son Joe Jr is not able to afford to buy it 25 years hence. |
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By: davidjtroy
27/10/2009
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"The wise investor knows the real value of an asset, NOT just its speculative one"
The only real value of a house is it's cost price. Anything more than that is an arbitrary figure included based on personal circumstances. So referring to real value is fairly redundant. |
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By: landlordcity
27/10/2009
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-The wise investor knows the real value of an asset, NOT just its speculative one.-
Are you telling us that YOU know the real value of an asset? If you don't mind me saying, that's a little presumtuous... I think perhaps you may be confusing something as nebulous as "value" with "cost". After all, what is the true value of anything? Diamonds, gold, shares in BHP, a vintage motorcar, a painting by Picasso, a fragment of the Dead Sea Scrolls, your house? You can only ever know the cost of anything and that, of course, is established by the marketplace. In other words, what someone is prepared to pay. |
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By: cxxxx@rocketmail.com
27/10/2009
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| Landlord - maybe you've missed the whole point - affordability: property in Pittsburg has fallen 40%. So my question is what for Australia? Not what's for Landlord in the past 10 years (we're all well versed on that by now). |
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By: ecchi.gaijin
27/10/2009
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irrelevant cxxxx. The system works around treading water while you use increasing equity from appreciation as deposits on further investments and so on again and again and again.
As I said, wonderful system while in a bull market. |
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By: cxxxx@rocketmail.com
27/10/2009
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| wonderful system, except interest only costs substantially more than renting. |
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By: landlordcity
27/10/2009
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-So the place is worth $787k in 2019 and Joe's wage is $81k. Now, do you think Joe Jnr could buy the dwelling?-
It depends... On what? Social demographics, financial and population dynamics, etc, etc. My son lives in the middle of Pittsburgh in the States. He purchased the property early this year and has substantial equity in it. Dead centre in the city. I could not have afforded a house there 30 years ago. |
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By: ecchi.gaijin
27/10/2009
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You got me Al, in fact with the same principals I referred to previously. DOH!! lol
I more meant in principal, the $50 a week method is a interest only loan so you never pay off the principal unless you choose to later.
I wasn't arguing with your method, in fact it is a wonderful system while there is a bull market. |
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By: mentawaisurf
27/10/2009
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| The wise investor knows the real value of an asset, NOT just its speculative one. |
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By: landlordcity
27/10/2009
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-If Landlord believes 'property ownership' is paying a mortgage to the bank, he is mistaken.-
Funny, I can't remember implying anything of a sort. That fact is easily confirmed by reading back through my previous few posts. How could you have possibly have inferred or concluded that from what I posted earlier?? So that there is no mistake or misrepresentation of what I said, I repeat, I own several properties outright and have equity in several others. I hope that clears matters up sufficiently so that you do not misrepresent me again. I do not in the least regret having made the decisions to buy property during the last 30 years and have no regrets buying it today. Commercial or residential. Property investment has served me well into retirement and will continue to serve me and my entire family very well into the future. By the way, I was not lured ("via spruikers or government bribes and vested interests") or tricked or manipulated by evil capitalists or mesmerised by the dream of quick riches. My "delusion", as you call it, came completely of free will. |
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By: almurrie1@y7mail.com
27/10/2009
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Echii
I am betting that hyperinflation is more likely and real estate will be infinitely more desirable than cash in the bank. Echii, I really do own the property and also owe the bank. If it burns down I still own it and still owe the bank. I only don't own it if the bank reposesses it, through non payment. It is the renter who does not own. But even if you pay off the bank, the government can step in and say "you don't own it" here is some money, get out, we own it. So I guess no one ever really owns land.
I claim interest on the mortgage, but not on the VISA. Like I said money for nothing if it goes up and a possiblity of a very big increase in the future when wages and prices and inflation let go.
My gamble, my reward, and also possibly my loss, but with a 35% gain in 3 months on the markets now locked in I really don't care! |
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By: cxxxx@rocketmail.com
27/10/2009
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| ok landlord, sorry to have offended you. Now, what of the future? Let's say Joe Bloggs has a $400k dwelling that was $200k 10 years ago - thats 7% growth pa while his wages grew, say, 3% from $45k (22% of the dwelling) to $60k. Awesome. That's possible again for the next 10 years, right? So the place is worth $787k in 2019 and Joe's wage is $81k. Now, do you think Joe Jnr could buy the dwelling? |
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By: ecchi.gaijin
27/10/2009
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Yes menta, I think the ads did mention "and you keep the FHBG". But the point being that they are not as heavily burdened by a mortgage as was suggested. In fact the ads I recall were offering repayments equal to their current rent albeit for a limited time I think (shudders at the similarity to USA sub prime loans)
Banks really do need to go back to basics. This includes
better evaluations given on finance applications (current system is pathetic)
Minimum deposit or else penalties apply (somewhat negated by mortgage protection insurance)
Stricter lending criteria (including employment ratings based on job security by industry) |
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By: jennyxuanwu
27/10/2009
3:43 pm |
Message deleted. |
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By: mentawaisurf
27/10/2009
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| Yes Pete, and offered on 100% instant vendor finance (ie. no money down so that they're under water as soon as they move in). |
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By: ecchi.gaijin
27/10/2009
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"Unfortunately, too many FHBs fit that description. "
I am not sure of what the actual statistics are, but the biggest market I saw targetting FHBs under the grant were the Divine packages etc. Most of their house prices were well under the average prices. |
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