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The Australian home prices debate Part 1: Why prices may fall.

March 19th, 2009 · Greg Atkinson · 339 Comments

One of the most discussed economic topics at the moment in Australia is regarding whether real estate prices are about to plunge across the nation or if Australian residential property will generally be spared from the savage price falls seen in the U.S. and the U.K.  Rather than take sides in this debate, I will merely outline some of the arguments being tossed around in newspapers, online forums and blogs etc. and see how well they hold up to scrutiny.

Firstly we need to appreciate that with a lot of investment related discussions that people or groups often skew data to suit their own arguments, or they conveniently forget to highlight the shortcomings of the data they present. Therefore rather than reproduce data that I cannot confirm is correct, I will merely refer to its existence without taking any particular stance. I will simply highlight the strengths and weakness of the various statistics being quoted and let readers draw their own conclusions.

So let’s look in Part 1 of this blog at some of the arguments being bandied around that suggest home prices may fall in Australia and then next in Part 2, we will look at other side of the debate .  I would like to say at this point thanks to Pete and the other readers at the Daily Reckoning for many of the good pints they have raised there and I have borrowed some of these to put together my discussion regarding Australian home prices.

The case for why property prices will fall in Australia.

Australia is in the midst of a real estate bubble.

There are plenty of graphs and charts out there that seem to indicate that we are indeed in the middle of a property bubble in Australia.  But of course you can always stretch out the time axis with these charts and flatten the bubble out, so the extent of the bubble is in the eye of the beholder.  At the moment any mention of the word “bubble” grasps a reader’s attention and the term is thrown around like confetti at a wedding. But remember, not all periods of rising prices mean a bubble is forming, sometimes this simply indicates a shift up to a higher long term range or value.

Home prices are expensive by historical standards.

Over at the Daily Reckoning there is a lively forum debate regarding Australian house prices and to illustrate how high prices are in Australia, some research data is shown where Median Incomes vs Median Home Prices is used to determine if housing is affordable or not. Certainly if you look at the data prices in Australian do look expensive, however there are some problems with the data presented. For example the data set compares prices for a large city like Sydney to small towns like Launceston in Tasmania and this should raise alarm bells for anyone who understands how median values are calculated. Did they use for example the same sample size for calculating the values for both locations and how did they take into account that Sydney house prices vary significantly from suburbs where movie starts live to true battler areas out west? Also how was income calculated and isn’t it better to measure wealth instead?  (many top earners keep their taxable income very low) Perhaps home prices are high by historical standards at the moment, but then again maybe we are simply being fed a lot of data based on flawed reasoning and assumptions?

If unemployment rises then homes prices will be driven down.

If a large number of people lose their jobs then this is of course unlikely to help the property market. However if the Australian economy can avoid shedding a massive amount of jobs then prices will not necessarily collapse. Home prices in Australian held up relatively well back in the recession of the early 1990’s (our last recession) so perhaps prices will hold up okay again? Also remember that not everyone that loses their job has a mortgage and many will be able to hang on for some time thanks to termination payments, savings, government welfare payments and some flexibility from the banks.

Home prices in Australia are very expensive compared to places like the U.S. and U.K.

I have seen this statement a number of times in various articles and it might be true, but I have no idea how this has any impact on prices in Australia? Prices for homes in rural Thailand are fairly cheap I hear, so what?

Property prices are tumbling in the U.S. and U.K…. Australia will be next.

It is true that property prices in the U.S. and the U.K. have been hit hard and this in ominous sign. However falling property prices is not a virus, so it is quite possible Australia will buck the trend.

Home prices cannot keep rising forever.

Well actually they can and have been in Australia over the long term (20+ years). Of course there is a rate at which prices rises can be sustained over the longer term and many people argue that at the moment prices in Australia have overshot this mark.

Home prices are being artificially supported by the first home buyers grant.

Up to a certain level this statement is true. I have read where experts say that first home buyers generally come into the market for homes up to $400k so I assume that the government grant probably gives new home prices up to this level a bit of a kick upwards. But the grant in some form is likely to be around for a long time so does it really matter if prices are being pushed a little higher?

For every house transaction there needs to be a buyer and a seller. With so much money having been wiped off the stock market surely there are less buyers now, thus prices will fall.

This is quite true and in some areas property prices have already fallen as owners need to downsize, or investment properties and holidays homes etc. are sold off.  Also people who had a nest egg sitting in stocks and were waiting to buy a home will have had their purchasing power slashed, so this also means there is less money swirling around to support prices.  On the flip side however, some people have probably been scared away from the stock market and may start looking at property as their investment class of choice.

Households have taken on too much debt and mortgages are too large, there needs to be a downwards adjustment.

Australian households have indeed taken on a lot of debt and much of this was used to fund stock market portfolios via margin loans etc. A lot of this wealth has been wiped out and thus there will be some sort of downward debt adjustment, but traditionally Australian’s tend to hang onto their homes as loans are non-recourse in nature. (unlike the U.S. for example where you can hand back the keys and walk away, the debt does not follow you)  It would seem reasonable however to expect prices for luxury homes to see a correction as many high fliers come crashing back to earth, but how much this impacts overall residential home prices remains to be seen (it might push down the median home prices say in Sydney for example, but the pain may actually be very localized and focused in certain suburbs).

So there is the case for a fall in property prices in a nutshell. I have not included every possible factor that may drive Australian residential property prices lower but I hope you can get a good overview of the debate ongoing at the moment. Please feel free to let me know if I have missed anything or if you simply have a comment. In a few days I will post the arguments from the other side of the home prices debate.


339 responses so far ↓

  • 1 Biker Pete // Mar 19, 2009 at 12:48 pm

    A completely unbiased article from an analyst who sincerely hopes and prays he is completely wrong. (And he is… .) Back in the days of really slow internet speed, WWW used to stand for Waiting, Waiting, Waiting. When it comes to Property Tragics hoping for The Big Crash, it still does… . No scary data from the Northern Hemisphere needed, thanks…. ! 😉

  • 2 Pete // Mar 19, 2009 at 2:01 pm

    Far more information is also available at bubblepedia.net.au. They’ve been going over this topic for quite a long time now.

    I respect your perspective on this but I think it comes down to debt all over again. And that is one of the core components of the GFC. If you think Australia will be affected by the GFC, then Australian house prices will too due to their linkages with debt.

    Something to keep in mind is that house prices are dictated by the market. That is, they are dictated by the values that houses are bought and sold at. This may seem elementary, but it is something to keep in mind when considering the notion that people who own their home will not have to sell, etc. Well, so what? Yes, that will reduce overall sales VOLUME. It will not necessarily affect the sales PRICE.
    If only one Australian house is sold in 2009, and it is sold for 50% of its previous months predicted value, then house prices just dropped 50% in a month, statistically.

    Without getting into what seems like arguments over semantics, I personally think the largest factors that will negatively affect the housing market are (in order):
    – credit availability (aka capital availability)
    – unemployment
    – interest rates (aka capital cost)

    Whilst I struggle to think of potential positive effects, some might be (in order):
    – availability of credit (including strange new banking regulations)
    – political intervention (eg, FHOG x2, x3, x4, x1000)
    – significant wage rises
    – sustained employment growth

    Call me negative, but I just can’t see a positive future for Australia in the next 2-3 years. I think we will get absolutely obliterated financially. Only one country can save us from that, and that is China. I really have no faith in China’s ability to completely restructure its economy and fuel some crazy internal growth binge (unsustainable, of course) that might pull Australia (via Western Australia) out of it’s massive financial hole.

    When it comes to Australias wealth…I like to think the glass is 90% empty (and the air can represent credit)

  • 3 Greg Atkinson // Mar 19, 2009 at 3:54 pm

    Biker Pete, I hope you were not calling me an analyst 🙂 Actually I am wondering if we have had a property crash in terms of home prices in Australia in the last 50 years? Do you have any information regarding that?

  • 4 Biker Pete // Mar 19, 2009 at 7:43 pm

    Some interesting points raised here. We’ve only really been into property 31 years. In that time, Greg, we rode out two plateaus, one lasting three years. All property we held during flat periods went simply balli$tic after these periods of non-capital-growth. Those who sold prior to that, saw properties sell for over five times what they’d cashed in for (ie., their original price). We sold one property for eight times its purchase price. I acknowledge that this kind of appreciation won’t occur soon… !

    Pete’s points:

    – Credit availability (aka capital availability): I acknowledge this factor, but initiatives like CBA’s one-year interest offer indicate banks are _keen_ to assist both those in property and those who want to own homes.
    – Unemployment: There’s over-employment in our area. No sign of a recession (yet, anyway). I have to book months ahead to get any tradies… .
    W.A.’s population is growing fastest of any state or territory. I believe ALL banks will follow the CBA’s lead, offering a one year lifeline to those between jobs. Failing to match the CBA’s interest suspension would be foolish.
    – Interest rates (aka capital cost) Despite our long experience in realty, even we could not have factored-in The Crashing Interest Rate. Our costs are down 45.6% and we _will_ lock in at around 4%….. far less than half of our current seven new projects. Anyone who does not ‘fix’ is foolish. My own bank is providing first-class information on this. We’ve never done it before, but rates are lower than at any time in the last 45 years.

    Pete’s other points:

    – Political intervention (eg, FHOG x2, x3, x4, x1000) Count on it!
    – Significant wage rises: Yes… WA’s TAFE lecturers just got twice the CPI, according to today’s West Australian. Expect to see more of this.
    – Sustained employment growth: We’re still seeing a lot of Job Vacancy adverts here. True, some of the mining jobs have gone, but construction here hasn’t slowed, despite a 20% decrease across Australia. Aged care is set to boom, along with health, medical services and recreation… .
    – China: Here’s where we really differ. I think there may be some seriously worrying aspects to China’s rise… but for good or bad, China’s growth is going to power the rest of the Western World for decades. And once we’re out of the slump (last in, first out 🙂 ) hold your hat. Some economies will boom… and our’s will be among the top ten. Just checked… my glass is full: Cape Mentelle Zinfandel… ;0

  • 5 Greg Atkinson // Mar 20, 2009 at 9:35 am

    Pete what you say makes sense and if things continue to spiral downwards property will come under pressure that is for sure. I have actually been surprised at how badly the Obama economics team have been managing things, the AIG bonus fiasco has really put the heat on them now.

    As for the GFC and house prices in Australia what I would like to get a handle on is if there is actually any credit crisis as such in the housing sector? Are people actually unable to get home loans now and actually since we do not have a large sub-prime problem do we really have fundamental problems in our own little credit world? Yes are are getting hit hard by the GFC but why would this fundamentally change the outlook housing in Australia?

    Now if unemployment soars that is another issue, but I wonder at what level this would trigger a property rout?

  • 6 8020 Financial // Mar 21, 2009 at 12:12 am

    Hi Greg,

    Interesting article as always. Look forward to Part 2.
    I’ve been predicting a collapse since 2005, and have consistently been proved wrong.
    For me the continuing resilience of our property market is a genuine economic anomaly.

    Nevertheless I still lean towards the view that time is running out for the property boom. I also think cheaper houses would be a desirable outcome. From a personal finance perspective, if you own your house outright, as long as you have a modest or better income from some source you will have more money than you will know what to do with (within reason).

    If the bubble does burst, it will be interesting to see what our government will do. So many groups have a vested interest in rising property values; the real estate industry, the (very powerful) property developers, banks (who want appreciating assets on their mortgage books), even ordinary mums and dads who like to feel rich because their home has doubled in value. Given Rudd’s record I think we can expect another waste of taxpayer money to support this market if it starts to seriously collapse.

  • 7 Biker Pete // Mar 21, 2009 at 10:03 am

    8020: “So many groups have a vested interest in rising property values; the real estate industry, the (very powerful) property developers, banks (who want appreciating assets on their mortgage books), even ordinary mums and dads who like to feel rich because their home has doubled in value.” Uhh, 8020, you forgot one major group… the entire Australian home construction industry… a very _minor_ omission, I’d say… !~ 😉

  • 8 Pete // Mar 23, 2009 at 9:44 am

    Biker Pete:
    “We’ve only really been into property 31 years. In that time, Greg, we rode out two plateaus, one lasting three years. All property we held during flat periods went simply balli$tic after these periods of non-capital-growth.”

    Seriously, for those who understand, what you have said there says EVERYTHING about your stance on property. For those that don’t understand, perhaps you never will.

  • 9 Biker Pete // Mar 23, 2009 at 10:04 am

    Yes, you’re right again, Pete. Right now I’m living in a double garage of a beautiful new home near completion. I’m doing all the expensive little jobs I can as a non-skilled laborer. Every other day, prospective tenants drive by, asking when access is possible. This is the fifth garage I’ve occupied in just over a year now… the other four homes were occupied even before landscaping and fencing were in… all at rents much, much higher than we could have hoped. (And interest rates much, much lower than we expected. ) My stance on property is to make money… to retire next year… very, very comfortably…. thanks to property and hard work. Don’t expect you to understand. If you don’t by now, I’m certain you never will… . 😉

  • 10 Pete // Mar 23, 2009 at 1:45 pm

    Ah, so you’re a ‘flipper’. Good for you.

    Enjoy your ‘comfortable’ retirement at the expense of the next generations.

  • 11 Biker Pete // Mar 23, 2009 at 2:01 pm

    Rather be a flipper than a shark* waiting for a shipwreck, Pete. The ‘next generations’ who didn’t buy now may be condemned to poverty, without homes, paying high rents while trying to survive on OAPs. What is particularly interesting of late is to see so many _smart_ share investors with scorched fingers preaching altruism, ethics and morality to those who committed to property. I’d expect to find your ilk in a church, preaching the new age mysticism of Property Armageddon, rather than religiously prattling on in a forum on shareswatch.
    * Or are you just another sucker along for the ride…?!~ 🙂

  • 12 Pete // Mar 23, 2009 at 5:31 pm

    We’ll certainly see won’t we. My ‘ilk’ as you perhaps like to call them, are becoming more and more common. As people wake up to the unsustainability of the property bubble, you will find that your ‘ilk’ are the condemned ones.

    You talk about religion…I am not telling people that they cannot buy houses. but you DO tell people that they need to buy them, and they’ll miss the boat if they don’t. That sounds a lot more like preaching.

    The reason I bother to post is to help people be aware that half the crap that gets touted by the REIA, the real estate agents, the media and property bulls like yourself can be completely refuted by applying some logic. I am very much against the hysteria and fear that your ‘ilk’ like to try and push onto the real estate market – getting people to make emotional decisions without thinking. A lifetime of debt is not something people should rush into.

    Time and time again I take your points and I explain how rising negative economic forces will counter them. All you offer in return is your limited 30 year window of experience. Your experience can be summed up neatly with this metaphor:

    *A famous Sea Captain ‘who reportedly wrote in 1907 that “I never saw a wreck, and nor was I ever in any predicament that threatened to end in disaster of any sort.” On the basis of experience, this captain might have concluded, he didn’t need to worry too much about future journeys. Five years later he commanded a liner that set sail from Southampton, bound for New York, with 2,208 people on board. The seas off Newfoundland were icy. You know the rest.’*

    Not sure if you would get that still. It’s hard to get through to someone that what they have seen and experienced, is not all that ever will be. Lets put ourselves in someone elses shoes…

    So someone experiences a growth in real estate and does well out of it. He tries his luck and does well again. He starts to consider himself an expert and continues to play the game, winning more as he goes. 30 years go by and he is more confident than ever that the 30 years he has been ‘investing’ is a large enough sample of time to encompass all the possible up’s and down’s of the real estate market. Been there, seen it all. Every slight down or flat patch, leads to a big upswing. He’s seen it two or three times, that means it will happen EVERY time. He doesn’t consider that there are financial forces at play greater than his interest rate calculator, new home-listing, or what the papers are saying. No, the world economy can be summarised by 30 years of experience. And then, out of nowhere, he hits a real-estate iceberg.

    Fortunately for you, from what you say you will have plenty of comrades who you can complain to when it all goes wrong.

  • 13 Biker Pete // Mar 23, 2009 at 6:47 pm

    You’ve misunderstood, Pete. We will do very well from rents! If there are flat spots, we’ll ride them out. You’re correct that we’re inexperienced in failure. Just lucky, I guess! (The harder I work, the luckier I get! 🙂 ) A preferred analogy to your Titanic Tale is many thousands of years older. Aesop tells of two insects who take opposing paths, the ant being the worker, the builder… and the grasshopper the hedonist, who really can’t bother to prepare for the bleak winter ahead. You’ll recall how the story ends. You know, I acted on Bill’s advice to bail on stocks… and have sufficient Super to meet any realty debt. As Australia’s population rises (count on it!) the rate of enquiries for our rentals will rise… and so will the rents… it’s simply demand. Your ilk are actually increasing the potential for increased rental demand and prices. While I don’t agree with Keen’s old prediction of 0% interest rates, rates will fall… and so will our costs. We don’t need _any_ capital gain. I could horrify you with an annual income figure, but your instant retort would claim it’s at the expense of future generations. Suffice it to say that each generation might be mindful of Aesop’s warning about preparation. I doubt countless homeless retirees will thank you for their plight, Grasshopper… . 😉

  • 14 Pete // Mar 23, 2009 at 7:20 pm

    Your comments reek of gloating Biker. I won’t trouble you with morals in this comment.

    You said: “You know, I acted on Bill’s advice to bail on stocks… and have sufficient Super to meet any realty debt.”
    It’s nice that you clearly pick and choose your reading of Bills articles. Surely you can see the irony that your statement?

    You start quoting Keen – do you have any idea what his stance is on all of this?

    Again, you make claims without any justification other than “demand”. Demand can change for many many reasons, i’ve stated so many. Population increase is not justification even in the slightest. Go scour the internet for info on homes built vs. population increase in Australia. You’ll find that population increase is around 50% of the rate of new homes built.

    Oh, did you hear? The gov. is going to knock back immigrants. I do believe that means less population than previously forecast. Oh, did you hear? Unemployment levels are rising! Do unemployed people rush off to have babies? (I don’t think so, although some might).

    You call me grasshopper, but the irony is that you are the grasshopper – especially when it comes to debt. And you are touting the lush debt-lifestyle.
    Ultimately though, this ‘discussion’ has nothing to do with ants or grasshoppers. It has nothing to do with hard work or hedonism. It has everything to do with irrational markets and people who think some trends are ‘eternal’. Maybe trends continue in a rational world. But we’re not in one.

  • 15 Greg Atkinson // Mar 23, 2009 at 7:43 pm

    I am guessing Pete and Biker Pete cannot agree to disagree? :)Anyway, isn’t it a case that sometimes property is good to invest in and so are shares?…and perhaps over the longer term both can provide investors with good returns?

  • 16 Pete // Mar 23, 2009 at 7:56 pm

    Greg: There are times and places for either, surely.

    Some argue that real-estate (non-commercial) isn’t even an investment. I am undecided on that myself.

    If riding bubbles is a persons idea of investing, that is fine with me. But to disguise it as something else, or to have delusions that an obvious bubble is not a bubble at all, that is when it gets out of hand.

    But…a bubble wouldn’t be a bubble, if everyone thought it was, would it? Bubbles rely on people making trades, the buyer thinking that he is smarter than the seller.

    And thats the problem with bubbles – they are driven by greed and irrationality. When they reach their peak and the sell-off begins, they go through the typical bubble-bursting emotions: anger, denial, etc.

    And all that is left is a financial crater where the bubble was.

    Then again, if a trend is sustainable, we don’t have to worry about all of that do we? None of this irrationality, greed and fear.

    Anyway, enough about bubbles. Point taken Greg 🙂

  • 17 Biker Pete // Mar 23, 2009 at 8:11 pm

    Nice close, Greg. I appreciate your positive comment “…that sometimes property is good to invest in…” . That’s how I see it, too. We build in the $380K – $440K market. We own three properties very much above that sector… and don’t expect appreciation in that area. It’s the sector in which Keen is actually correct. Having placed $700K into the share market recently, my eldest son would also agree with you that: “… over the longer term both can provide investors with good returns…” . I’ll let Pete have the last word _in this forum._ It’s unlikely we can agree, or even learn anything from each other. Pete knows I believe in property… but he hasn’t given me any clue of where my money is better placed. Go ahead, Pete: make my day. I won’t respond…. . I’ll just record your wisdom for posterity… !!~ 😉

  • 18 DrewRiskManager // Mar 28, 2009 at 10:35 pm

    Most of the BULLS comments here are just like those of the UK and US before it crashed. Think about what would a property investor said in the UK before prices crashed. Great capital growth, sky rocketing rents, prices never fall, rock solid investment. The Australian housing price bubble comes more evident each day to the average Australian, well those that care to use some of their grey matter. The unexpolded bomb in the Australian economy is the largest housing bubble in the world. Good luck those who want to sit on it.
    Yes I own my home, yes I have an economics degree. Yes I’m an investor who sold up in 2008. Its a myth house prices will go up for ever, just look around the world. Skippy wont save us, the vested interest groups in US and UK were just as strong as they are here, didn’t save house prices there.

  • 19 Biker Pete // Mar 29, 2009 at 9:18 pm

    Lots of economics degrees at Harvard, DRM. What did Harvard lose in endowment funds in the GFC? Eleven billion dollars, wasn’t it? OK… I’m waiting for the great expoldtion. That’s what you termed it, I believe?! 😉

  • 20 Anthony // Mar 30, 2009 at 4:04 pm

    My wife and I have been fortunate with timing our house purchase and have seen high growth in the last 5 years, however at the time I remember agonising about having missed some of the price gains before then. I have spent most of that time congratulating myself on my ‘smart’ decision, however more-and-more think that it was just chance. We also bought a unit 8 years ago, so I am one of the people pushing up bubble I suppose. Although Pete I have six children and envisaged them using it for uni etc. (i.e. mild umbrage at the ‘greed’ references but I’ll get over it) – one reason I did this is because I was worried that they won’t be able to afford buying on their own. All of a sudden I am thinking more about risk and I have been trying to understand whether there is a high probability of a major housing price correction. I have summarised the arguments as I understand them for/against a house price crash below – I have borrowed these ideas heavily from others (sorry for putting these all in Part 1, but I can’t really separate them in my head):

    1. Background:
    1.1 Currently Australia housing is very high prices compared to wages, i.e. unaffordable. There is a recent report from ‘Demographica’ detailing this: http://www.demographia.com/#land , look at Table 4 to see how bad Australia has become. The housing prices in UK, Ireland, Spain and US have all suffered major price falls in the last 6 months. These all had high unaffordable indices; it makes me wonder why would Australia be any different (partly answered in 3.1 below)?
    1.2 In general there is artificially high prices compared to last 100 years – see link to Shiller index: http://www.ritholtz.com/blog/wp-content/uploads/2008/12/case-shiller-chart-updated.png
    1.3 High debt to equity ratio. Would not take much house price fall for some people to have negative equity (when borrowing 95-100% with FHBG). Credit was too easily obtained. I think that a crash could see some suburbs particularly (e.g. the new $450-500K homes with young families).

    2. Reasons I think that a house price crash might be triggered:
    2.1 Unemployment rising. This is a direct response to the world economic crisis (reduced demand for mining products, fabricated products etc.). This will help create distressed sellers.
    2.2 Sudden need for retiring people to sell: Baby boomers with a share portfolio now worth ½ what it was 6 months ago and a couple of investment properties. Might have to sell their investment properties to finance retirement.
    2.3 Credit tightening: harder to get a loan – lead to reduced demand.
    2.4 Banks may more independent to RBA and raise interest rates if the cost of finance is too high (although I don’t think this will happen).
    2.5 Reduced real wages because of economic crisis – inability for some people to pay high mortgages. Might be exacerbated if ‘quantitative easing’ i.e. ‘printing money’, leads to inflation.
    2.6 Recession . . . . . Deep Recession . . . . Depression(?)

    3. Factors that could help prevent a house price crash:
    3.1 Australian market not oversupplied compared to US & UK – this is a fundamental difference we have. Also, although credit was probably too easy, it wasn’t quite as bad as the sub-prime.
    3.2 Government intervention – FHBG. This is particularly propping up the lower end of the market (units etc. <$400K)
    3.3 Government intervention – low interest rates (RBA). Interest rates are now low – however maybe they can increase (and also inflation?)
    3.4 Government intervention – guaranteeing bank savings to help confidence.
    3.5 Housing construction has recently fallen (I think, based on some stats I saw but can’t remember source) – less availability of housing.
    3.6 Real growth in demand triggered by immigration. SE Qld gets an extra boost because people are continually up from the South.
    3.7 Government intervention – stimulus packages ($$$ to low income earners, funding infrastructure programs etc.).
    3.8 People reducing spending (improving their debt situation, living within their means etc.).
    3.9 Construction costs remain high – this might be a buffering effect – I’m not sure on this because maybe they would fall ….?
    3.10 Government intervention – the control of land release in cities holds prices high.
    3.11 Possibility of people reducing their expectations (move to country, move back in with parents etc.)

    4. Summary:
    The evidence that there will be a significant house price crash seems compelling, Pete you have articulated the issues very well here and on DR website posts. My feeling is that the Government intervention is a buffering effect against a residential housing price crash, however I think that ultimately this will fail and unemployment/recession will be the dominate forces over next 1-2 years. I work in mining and have many colleagues who have lost their job in the last 6 months, I myself was out of work 5 years ago for almost a year – and this memory makes me scared – to lose a job at the same time house prices fall could wipe out everything for many people. This is of course my opinion, and I’m interested to hear what others think about it.

  • 21 Biker Pete // Mar 30, 2009 at 5:54 pm

    Interesting summary, Anthony. Your closing statement “….to lose a job at the same time house prices fall could wipe out everything for many people” interests me. It implies that with unemployment, people no longer need a roof over their heads. A fall in house prices wouldn’t “wipe out everything” as you claim… at least not to the same extent as did the huge super and sharemarket crashes, forcing those near retirement age to work on for five to ten more years…. as many tell us they now must do. Now _that’s_ trauma!
    As Pete continually reminds us, “time will tell”. Having waited patiently for years for the imminent realty crash, I’m prepared to continue to wait, but I’ll build a few more nice $400K homes in the interim, I think… . 🙂

  • 22 Pete // Mar 31, 2009 at 12:16 pm

    Thats a pretty good summary Anthony. Certainly makes up for my sporadic points i’ve left all over the place (they’re not particularly organised). 🙂

    I think you have a lot of the core points listed – but miss out on some of the other factors like rising/falling rents. But those can be reserved for arguing with the RE bulls.

    I still think that the ‘housing shortage’ is a myth and that it is only an ‘affordable housing shortage’. This is a media and real-estate-agent perpetration. They have everything to gain from continuing it too.

    Every city I go to I can see constructions, new apartments, new houses created in new suburbs. I see constructions that have been abandoned too.

    If it was a real housing shortage then we would see more homeless people. Remember the Gov. did get rid of a lot of Government Housing and sold it off to investors, etc. Even those people who needed Gov. assistance still find somewhere to live. That’s why I believe the shortage is a myth. Who cares if 100’s of people turn up to an Auction? People are greedy, and foolish (lots of people are still real-estate bulls, but that doesn’t mean they are right).

    The difference between a housing shortage and a housing affordability shortage is (and I said this on DR):
    1) housing shortage correlates with population expansion
    2) ‘affordable’ housing shortage correlates with availability of capital (credit)

    Argument against 1:
    – House construction went up at twice the rate of population expansion (inc. immigration). If you really need these stats I can probably get them for you, they’re on bubblepedia.net.au
    – people are NOT forced to live on the streets en masse. We don’t see tent cities or anything like that…(although i’ve seen some real expensive caravan park slots for sale)
    – we would ‘probably’ see population booms in rural areas as unemployed people seek places to live. Some of the fringe areas of cities have in fact had this, but instead of scrappy little cheap houses, these booms are the opposite. They are giant family homes built for capital appreciation or as ‘dream homes’ that just cannot be afforded closer to cities (yes, many australians have become infatuated with a ‘dream home’. Thanks media and RE agents!)

    Argument for 2:
    – housing is freakishly expensive compared to wages. Anthony already pointed this out.
    – housing is freakishly expensive compared to the longterm mean (see Anthony’s case-shiller chart)
    – credit has been very very relaxed in recent years. Zero deposit loans? Cool!
    – FHOG…x1,x2,x3. This was to ADDRESS (no pun intended) the affordability problems. Amazed that it contributes to it?
    – very high employment levels. In fact, during the resources boom there was a skilled worker ‘shortage’. This means increased wages as employed people have all the bargaining chips. (right now the employers have the bargaining chips again)
    – interest rate jumps scare the sh#t out of people. Strange that? Because even the smallest jump means that people will be losing a LARGE portion of their income to their mortgage. The fact that so much of people’s income must be devoted to a mortgage means that even more people are servicing mortgages on a razors edge. When interest rates rise (my assumption) this will be extremely evident to everyone. Foreclosures will be front page news.

    Notice that I have not given counter arguments to those points. Someone else can do that if they like – I will struggle to find any.

    Anthony:
    “3.8 People reducing spending (improving their debt situation, living within their means etc.).”
    We need to consider what this would actually do. Reduced spending = less money in the economy = less employment = foreclosures (for mortgaged home owners who lost their job). This is just one reason that Rudd is giving out this stupid stimulus money. Nevermind that it was our money to begin with (Tax) and they are essentially asking us to spend our own money.

    Anthony I agree with your summary, although I am a bit more pessimistic on the outlook of our economy and think it might be longer than 1-2 years. This will partly depend on the level of government intervention (which will make things worse) and also many international factors.

    I think the only thing that can temporarily stop, or slowdown the RE crash is government intervention at this point. If the Gov. sees the RE market as the key to keeping our bubblefied economy afloat, then it will give it everything. If the Gov. thinks retail spending and stimulus is the way to go, then RE will go down heavily. The only saviour for our bubble economy at the moment could be Chinese investment of surplus capital, if we let them. So far the Gov. is saying ‘no’ to that. If they ever say ‘yes’, who knows what the effects will be.

  • 23 RBA View, Today // Mar 31, 2009 at 12:26 pm

    “We continue to believe that the market here will hold up better than overseas,” RBA deputy governor Ric Battellino said in a speech to the Urban Development Institute of Australia in Brisbane.
    “There are a number of reasons why this is likely to be so, but perhaps the most important is that we did not have the same deterioration in lending standards that occurred elsewhere.”
    “By and large, the great bulk of Australians who took out housing loans have been able to afford the repayments,” he said.
    With fewer defaults knocking values down, Australian housing prices have only dipped 3% in 2008, compared to the 20% falls seen in the US and Britain, he said.
    In addition to higher lending standards and the absence of the sub-prime mortgages which imploded in the US, there is also a shortage of available homes in Australia, helping to keep demand high, industry analysts say.

  • 24 Pete // Mar 31, 2009 at 12:32 pm

    Drew: Yes, the ‘it’s different here’ attitude never ceases to amaze me. People talk about emotional stock markets and similarities there, but seem to think our RE is completely immune to the kind of behaviour seen elsewhere.

    Whilst our markets might not be identical, the ‘before-crash’ signals sure are. People who choose to completely ignore these signals must be living in denial if they think market behaviour differs from country to country THAT much.

    That said, yes each case (RE market) needs to be judged on its own merits. But, as we are all readers of DR here, surely we have noticed that DR had predicted the market crashes would come – based on the market SIGNALS.
    I certainly didn’t ignore DR’s advice and am much happier for it. I certainly won’t ignore the signals of our RE market, especially when we have some similar recent models to compare to overseas.

  • 25 Pete // Mar 31, 2009 at 10:55 pm

    Ric Battellino is a crook.

    I hope (somehow) he is held accountable for the crap he is touting when the RE market falls. This is not the first time he’s done it either. I’m not sure what his game is – maybe he truly believes what he is saying.

    But consider what he is saying: he is telling us how it is right now – in the current market. So what? The point is that things will change. Prime can turn into sub-prime at the loss of a job, house price depreciation, etc.

    Isn’t it the job of economists to comment on the FUTURE, not the current situation?

    Comparing our current RE market which has not fully begun to fall, with that of RE markets that have fallen? Why assume that they will all happen globally at the same time? Will the triggers of the falls be exactly the same?

    The simple points remain – we have a huge RE bubble, and some major negative forces gaining momentum against it (unemployment, tightened lending, economic downturn, etc).

    Thanks for nothing Ric ‘Blinkers’ Battellino.

  • 26 millie // Apr 3, 2009 at 3:36 pm

    Great contributions, thank you.
    We seem to be hearing about “lack of housing stock” almost constantly.
    On what basis is this made, what data is there to support this assumption?
    Housing prices are still significantly above the average wage.
    Basically it means, houses continue to be not affordable to a large percentage of the population.
    The same goes for rents, there is only so much rental increase that can be absorbed.
    I often look through the real estate sites and houses are barely selling, although sellers seem at this point not prepared to drop prices.
    Liquidity has reduced significantly, suggesting lack of buyers.
    I am not sure that the risk of asset devaluation (as an investor) makes it worth while buying property, for the sake of a few dollars weekly rent.
    the outgoings in property are quite significant, land tax, rates etc. even with a drop in interest rates.
    If there is unlikely to be a capital gain in the next year or years, why bother?
    this leaves cash savings and gold.
    We now have a huge and stash of cash being thrown around and gold to be sold off by the IMF, thanks to a “fantastic” G20 meeting.
    Are we running a risk of hyperinflation/ Is cash to become worthless and gold devalues?
    So what is left for those needing something for retirement?
    Give up, go on a spending spree and get Kevins’ hand outs?

  • 27 Biker Pete // Apr 3, 2009 at 4:17 pm

    Well, the cash handouts, on top of the $21K, now give a couple of FHBs $22.8K, with no stamp duty to pay. There are some great advantages to building or buying a newly-completed house, Millie. There are fewer ‘external’ restrictions, like those imposed by landlords, but I guess the real positive is the lack of rental inspections four times per year. They’re necessary, but pretty intrusive. This month interest rates will really fall… and more tenants will wish they’d acted earlier. If the FHBGs are extended and/or increased in July (probably as NHBGs, rather than FHBGs) that will of course, help boost the third largest Australian industry: construction.
    Either way, by May, we expect to be making three times bank interest on our rentals. I understand the anxiety of those who predict The Great Home Crash, but The Great ASX Crash, The Great Super Crash and The Great Cash Crash have all impacted… while realty has been virtually immune so far! 🙂

  • 28 Greg Atkinson // Apr 3, 2009 at 6:37 pm

    Millie, the only calculation I have heard about for determining the housing shortage was based on taking into account population growth (either via births or immigration) and then looking at how many new homes were being built. I think there was some assumption that you needed 1 new home for every increase of 2.1 people or something like that. Therefore if homes were not being built to keep up with the increase in population then some bright spark reckons there is a shortage of homes. I do not think they take into account things like granny flats, renovations or people moving into nursing homes etc. (but I might be wrong) In any case I reckon it is one of those “statistics” that seem very questionable to me. I will try and find out some more or maybe someone out there can shine a light on the subject?

  • 29 Pete // Apr 5, 2009 at 10:51 am

    Biker Pete:
    “the real positive is the lack of rental inspections four times per year”

    You can’t be serious? That is the REAL positive? Haha! Talk about getting your priorities mixed up! Getting up to your ears in debt in an environment conducive to falling house prices, high unemployment, tighter credit and rising interest rates is an extremely excessive way to avoid these ‘inspections’.
    Besides, you are incorrect. Inspections occur twice a year in my state. I find they are not particularly intrusive and give me a great opportunity to advise of any fixes that need to be made. Though I would happily put up with more than 4 inspections a year rather than destroy my financial future.

    “This month interest rates will really fall… and more tenants will wish they’d acted earlier”

    Why would they wish they acted earlier, if interest rates are going to fall even more now? Isn’t it a good thing they waited? Not to mention that I disagree that rates will fall, or that people should commit to buying houses in a falling market, but you contradict yourself here.

    Greg: I’ll try and find you some stats. The ‘shortage’ stats are just crap touted by the corrupt REIA, agents and manipulated media.

  • 30 Pete // Apr 5, 2009 at 10:52 am

    Millie: Personally I think that the gold sell-off by the IMF is excellent. I confess that I am bit of a gold bug. The IMF has a huge gold holding, and anything to reduce the ‘power’ of such a stupid institution is great.

    The threat of huge institutional price manipulation of gold is one that concerns me as a holder. So this goes some way into alleviating worries.

    Yes the gold price will likely go down for a while, but this is fine. Unlike fiat currencies, the amount of gold in the world barely increases each year. Eg: there is a relatively finite amount of it. This means that even though the IMF might sell the gold, it does not make it ‘less valuable’ as such. All it does is temporarily alleviate (flood?) the shortage in the market.

    The next worry is: Who will buy the gold? China? Small investors? America?

  • 31 Pete // Apr 5, 2009 at 11:05 am

    Greg: This link shows a lot of stats, re: new buildings. Note that it only shows up to 2006.
    http://bubblepedia.net.au/tiki-index.php?page=OverbuildingByLocation

    Incidentally, the main page of “bubblepedia.net.au” has counter arguments to almost all of the Real Estate bull claims. Scroll down the page to see them.

  • 32 Biker Pete // Apr 5, 2009 at 3:31 pm

    Nah, much cheaper to buy than rent next week, Pete. Must be a l-o-n-g time since you rented, son. Tenants hate those inspections. Two bits of good news today: Rudd’s one-year moratorium on house repossessions… and the 2.3% rise in Perth home values. Tuesday’s interest rate reduction will help, too. Now we don’t have long to wait to see who’s right about that one, do we? 🙂

  • 33 DrewRiskManager // Apr 6, 2009 at 1:03 am

    Ha ha ha a 2.3 % retracement on a down trend and you are calling the bottom, you must be kidding. Employment, wages and credit availability drive prices (I’ll lump speculation in with credit).

    So lets see employment – going down – CHECK, wages – not going up any time soon, in fact many second income earners are those losing their jobs, so household incomes are falling _ CHECK and finally credit – MMM didnt the ComBank boss recently advise tighter loan requirements and now other banks are following, you only have to look on real estate.com to see the number of properties that get relisted due to loans not being approved – CHECK.

    Yeah looks like the market drivers line up for the next boom, NOT.

    I suppose using your 2.3% increase in prices (retracement) for calling the bottom you would have been one of the poor sods that started buying shares when they fell 10% then rallied up 3%, gee that would have made you a fortune, NOT.

    I’ve said it before we must have the smartest most savy house speculators in the world, lucky us….

    G’Day Pete

  • 34 Biker Pete // Apr 6, 2009 at 12:03 pm

    Yeah, G’day Drew’m n Gloom. No, as I’ve said previously, I bailed at 6200 on the ASX… as well as shifting our Super to cash simultaneously. You keep whingeing, I’ll keep building. I’m certain you are far, far wealthier than I am, far more knowledgeable about the future… and certainly more pessimistic. With advantages like that your Merdes Touch can’t fail… ! 😉

  • 35 Pete // Apr 6, 2009 at 11:24 pm

    Talking of tighter loan requirements Drew, I just did some research on the UK market.

    I figure we’ll probably get a bunch of news about the RBA’s cut tomorrow.

    Here’s an interesting piece of information people who think the RBA controls the rates that banks lend at.

    They don’t.

    RBA cut the ‘short-term’ rates. Not a whole lot to do with mortgages, especially if that money was borrowed from overseas by your friendly bank.

    In the UK their RBA equivalent (BoE) cut rates to 0.5%.

    A 0.5% mortgage rate would be sweet! But won’t happen.

    The actual variable mortgage rates are over 4%. That is still lower than ours right, and seems like a good deal?

    (Well, yes and no. Wait until their printing presses run hot, which they’re about to do, they’ll go up with inflation)

    Typical loans in the UK require an LTV of 75%. (LTV = loan to valuation…how much deposit you will need).

    Okay, so an LTV of 75% on a 300k house is…75k. Know any FHB’s with 75k to deposit? Even with the maximum FHOG of 21K, thats another 54K to make up from real savings.

    Will our banks start being cautious about LTV’s? Well, they already are starting, with most requiring a minimum 90% LTV.

    Watch that space.

  • 36 Pete // Apr 6, 2009 at 11:41 pm

    Oh, re: RBA. Check this out:

    Banks may not pass on Reserve Bank rate cuts
    “Westpac on Monday warned it may not be able to pass on a rate cut in full to borrowers because of the high cost of money from overseas.”
    http://www.news.com.au/heraldsun/story/0,21985,25300524-662,00.html

  • 37 Greg Atkinson // Apr 15, 2009 at 11:46 am

    Hi..here is some data people might want to think about. It is from the National Housing Supply Council:

    Table 3.9: Average cost ($) per square metre for new detached houses, semi-detached dwellings, and units, by capital city or State or Territory, 2008

    House Semi-detached Unit
    Sydney 917 1,173 1,890
    Melbourne 933 1,161 2,149
    Brisbane 947 1,385 2,313
    Adelaide 916 1,402 1,376
    Perth 961 1,186 3,907
    Tas 955 1,080 951
    NT 1,153 1,322 1,666
    ACT 1,023 2,115 1,986
    Australia 950 1,231 2,141

  • 38 Pete // Apr 15, 2009 at 12:23 pm

    That table didn’t come out very well. I’ve had a go at formatting it:

    City………..House…Semi-D…Unit
    ============================
    Sydney……..917…..1,173…..1,890
    Melbourne…933…..1,161…..2,149
    Brisbane……947…..1,385…..2,313
    Adelaide……916…..1,402…..1,376
    Perth…………961…….1,186…..3,907
    Tas……………955…..1,080…..951
    NT…………….1,153..1,322…..1,666
    ACT…………..1,023..2,111…..1,986
    Australia…….950…..1,231…..2,141
    ===========================

    Not sure what it tells us really. Maybe construction is harder in NT due to the weather?

    ACT is ludicrous as always. Thats because it is full of public servants who like units?

  • 39 Greg Atkinson // Apr 15, 2009 at 12:35 pm

    Pete, I am not sure what it tells us either. But I guess in theory you could work out some sort of baseline prices for property based on land value + constructions costs.

    Also this data should be taken into account when people show graphs indicating how house prices rose over the last 20 years, because during the same period houses were getting bigger so that needs to be factored in as well. Like I have said before, the problem is a lot of the “data” tossed around by both the RE bulls and bears is misleading. (and does not have a sound baseline) You cannot graph something on an X-Y axis if you do not have consistent data. (i.e. an average house in 1980 does not equal a house in 2000)

  • 40 Biker Pete // Apr 15, 2009 at 3:15 pm

    “…during the same period houses were getting bigger… ” GA 15/4: Good point, Greg. One of the reasons our rentals are in high demand is they’re all four BR, two B/R, home cinema, double garage, etc. A couple have large guest rooms with an extra ensuite. Demand is high across the board. We’ve now had two families pay rent well in advance _this year,_ simply to secure the home. We’ve never requested this, but it does help top up the offsets… .

  • 41 Biker Pete // Apr 15, 2009 at 3:18 pm

    Uhh, you may need to recheck your figures, Pete… ! One is missing 🙂

  • 42 Greg Atkinson // Apr 15, 2009 at 7:06 pm

    Biker Pete, actually when I think about it they do not seem to go back and plot housing prices in today’s dollars very often, if they did they would adjust the graph a little. Also I wonder if construction costs per square metre have been going up or down? I suspect costs have been rising as people started adding more finishing touches like the old home spa, remote controlled garage doors etc.

    What figure is missing?

  • 43 Biker Pete // Apr 15, 2009 at 11:29 pm

    Our experience over the last decade indicates a rise in costs of around 4% per year, Greg. The recent plateau has resulted in some interesting developments here. Top quality tilers have not raised their quotes. Plumbers might be working in gold, the way costs have risen. Woodworkers (floors, particularly) are pricing themselves well out of our range. Grano workers likewise (about $8K for exposed aggregate driveways). What is particularly hard to take, considering we’re in the midst of a recession(!) is that we’re queued, waiting for tradies to find time for our jobs. There is just so much work! Weeks pass without anything happening. Meanwhile prospective tenants inundate us with calls. Frustrating at times! (What figure is missing? The number 1… as stated earlier. Check Pete’s formatting… fifth line… .)

  • 44 Steven // Apr 18, 2009 at 2:54 pm

    Biker Pete
    How on earth is a 2.3percent rise in Perth house prices good news?

    All it means is that it would make it harder for me to afford a house

  • 45 Senator13 // Apr 18, 2009 at 3:26 pm

    Lately, out of curiosity, I have been to several display apartments for new developments for off the plan purchases. The agents seem unwilling to provide copies of the contract with out putting money down and upon further inspection of the contract right at the end of the special conditions there are a large number of altercations, deletions and changes that are made to the standard law society contract. Once deciphering all of them it would appear that the developers have taken out important things such as start and end dates and sunset clause so a development could remain unfinished indefinitely…

    Has anybody come across this practice before? Could this be developers trying to lock in unsuspecting buyers?

  • 46 Biker Pete // Apr 18, 2009 at 4:11 pm

    There’s certainly a ‘buyer beware’ component here. Starting out, we weren’t really aware of many of the issues. We can both remember the day we realised that there were numerous answers we needed; but more importantly, we needed to define… and then arrange sequentially… the _questions._ We did that on scores of flashcards… and then moved each question up or down the stair rail, according to ‘higherarchy’ (spelling intended). Today we enjoy a good working relationship with our current builder, who has constructed the last six rental homes for us… and is about to commence two more. Our view is that it’s not so much developers trying to lock in unsuspecting buyers (it’s all in the contract in black and white) but there’s a degree of major separation between the buyer’s need to know… and the builder/developer’s ethical duty to explain… if you know the question(s) to ask. Irregardless of that, we have learned that a buyer has infinitely more power than we suspected. Add to that an enormous amount of ‘leverage’ if you’re building continually, as we are. With every new home under construction, we learn that it was actually impossible to define ALL the questions, as we’d attempted to initially. But during the process we’ve been able to save immense amounts of money, without compromising quality one iota. Much of that money, now in offset accounts reducing interest, was earned through the process of spending a day brainstorming, then sequencing, then prioritising the _questions_ we needed to define before we could seek answers… . Doing this with Super saved us huge amounts; with interest rates very, very large amounts; with land purchase very large amounts; and large amounts with building. What are the questions you may need to ask? The _hundreds_ of these we’ve defined will be different for every family, based on your different circumstances… .

  • 47 Steven // Apr 24, 2009 at 8:28 am

    Biker Pete I am going to be a first home buyer and I hope to hell that Rud dos NOT extend the grant

  • 48 Biker Pete // Apr 24, 2009 at 9:49 am

    Then your timing is even more critical than ours, Steven! 🙂

  • 49 PerthNow NewsFlash // Apr 24, 2009 at 10:03 am

    By Malcolm Farr
    April 24, 2009 06:58am

    IN an unexpected boon for new buyers, the Federal Government will extend the first homeowners scheme in the May Budget – defying predictions it would be axed.

  • 50 Steven // Apr 24, 2009 at 2:04 pm

    I want a crash Biker Pete

    because

    A. I want to afford a house
    B.I will be happy to see all rich greedy capitalists go under

    HAHAHA

  • 51 PerthNow NewsFlash // Apr 24, 2009 at 6:23 pm

    Spoken like a committed tenant, Steven! 🙂

  • 52 Steven // Apr 24, 2009 at 9:03 pm

    Nar im not a tenant I still live at home saving up

  • 53 Biker Pete // Apr 25, 2009 at 8:15 am

    That explains your “I want” letter to Santa, Steven.

  • 54 Senator13 // Apr 25, 2009 at 10:26 am

    I also think people’s definition of a “crash” is different from one person to the next. Would minus 20% be considered a crash? Some areas have gone down 20% or does “crash” mean that they will go down another 20%? Or is a “crash” more or less then that figure? I don’t know if wishing for a “crash” is the answer to it all? Do I think there will be a housing price correction – Yes? Is that a “crash” – maybe not…? What do people think?

  • 55 Greg Atkinson // Apr 25, 2009 at 10:47 am

    Excellent point! From what I have seen people are pretty vague about what a “crash” might be. Some just says prices may fall by up to 20% in some areas…which is a pretty useless call since that covers any drop from o.1% in any area across the nation.

    Personally I think anything in the range of 0-10% is just a correction, say 10-20% is a major correction and 20% or over would be “crash like”. (or bear market is we use stock market terms) So a property “crash” would have to be a 20% or more decline in the average home prices across the nation.

    Anyone have some other views?

  • 56 Steven // Apr 25, 2009 at 12:44 pm

    Well Biker Pete my parents payed the house off in a few year and they arent rich

    Its a nice house in an average suburb

    Why should it take them maybe 5 years to pay it off

    But me 30 years

    My parents didn’t have to put up with this crap so why should I

    They say house prices [average house] should cost 3 times the average income
    So why should I be prepared to pay like 9 or 10 times
    HAHA

    this is a joke it has to correct its self because it just too far on the unaffordable scale

    Im not an idiot I would rather not pay for a house than to be ripped off

    All I would be doing is playing into the Capitalists {investors] hands in
    A. Keeping the market up
    B.Making the investors richer, which to me is like rewarding someone who done the wrong thing by you [and my fellow young people trying to get a fair chance to buy a house at a fair price].

    So I think they should drop by about 50percent, even then they would still be above what would be considered a fair price, ie even a 50percent drop would be considered unaffordable

    What do you al think?

  • 57 Biker Pete // Apr 26, 2009 at 12:23 am

    Never had to hope others would fall so I could rise, Steven. As you mature, it’s likely that you’ll abandon the ‘wishing’ plan and develop a more realistic view of how to get ahead. That may seem difficult, but it probably starts with getting a good education.

  • 58 Ned S // Apr 26, 2009 at 9:50 am

    Steven – I think Aussie houses cost a bit more than is particularly healthy or reasonable as well. And there is little question in my mind, that there are some some pretty powerful self interest groups making a lot of profit from it.

    Hey, it really isn’t at all reasonable to see land costing what it does in a country like Oz that has so much of it – Unless governments and property developers and banks have collectively chosen to think that is “good” rather than “bad.” (I know that could start a seperate debate on things like the need to pay a premium for desirable land and there being so little desirable land but we could live in highrises but we don’t want to and we could live on cheapy land but that would be in the boondocks and the transport infrastructure is lousy so we don’t want to etc – But for now at least I’ll move along – Because my basic thought is that even when there is land made available in the boondocks, it still isn’t cheap because some powerful self interest groups don’t want it to be.)

    And it just isn’t at all nice that the one project builder I have an October 2007 price list from, has increased their quoted price to build a basic house by close to 30% in the last 19 months – With a real lot of that being tacked on the day after Mr Rudd announced his FHOG increase perhaps? (I do wish I had their October 2008 price list rather than the 2007 one!)

    But as to a crash – One has to be a bit careful what one wishes for is my thought – Because the main drivers behind that, will probably be some sort of mix of high unemploment and tight credit conditions. And neither of those things bode especially well for aspiring first home buyers – Unless they have already managed to put aside a pretty respectable cash deposit and also have a pretty secure job I’d say?

    If someone is in that situation then I’d expect them to benefit from a property crash. But to what degree in reality???

    Well, if it is a crash of 40% (Steve Keen’s number?) a lot of first home buyers simply won’t get all of that benefit – Because:

    a) They’ll be looking at where they need to live to stay employed – And lots of those areas will have fallen by less than the national average, and

    b) They will be looking and saying Im not buying into a falling market – That’s crazy – No way I’m risking my equity just yet! As in not too many will manage to time the bottom whatever the bottom might happen to be, and

    c) Around about that “bottomish” point, the cashed up property investors who sold to first home buyers up towards the top of the market when they first sniffed the crash, will have started moving back in big time because they reckon things are looking “cheap enough” – And lots of first home buyers will find themselves being oubid by $1,000 by those same cashed up investors even though the first home buyer has bid every last cent the bank has pre-approved them for.

    And along the way the government just could have been raising taxes a lot to help pay the dole to other previously aspiring first home buyers who’ve become unemployed and to fork out aged pensions to previously self funded retirees who can no longer live on the 2% (or whatever other low % it is?) the banks are paying them for having their life savings sitting in the cash deposits that allow banks to fund loans to first home buyers and investors alike.

    Does any of that change my personal opinion that house prices seem a bit high to me just now? No, it doesn’t. It simply tries to add some thoughts on some factors I think could be expected to be of some relevance in any possible housing crash scenario.

  • 59 Biker Pete // Apr 26, 2009 at 10:21 am

    A lot of sense in that last post, in my view. I don’t disagree that housing is too expensive. We’d love to build high-quality homes in good suburbs, more cheaply! 🙂 Another essential, food, is too expensive, too. It should cost half as much, because it’s an essential. Being autistic, with an ‘I’m-the-centre-of-the-universe’ perspective, I’m awaiting with joy and anticipation, the Great Food Crash. I realise that when it comes, primary producers and others may be affected, but it’s my right, as a gimme pig, to have exactly what _I_ need, as soon as possible. My parents bought food at half today’s prices… and now I should be able to consume cheaply, too. What defines ‘A Crash’? Probably a 50% fall, if you examine two other examples: the share market and interest returns on cash. If Steven (either of them) is still waiting, blue with breath held, for a 50% crash in the very lively $350 – $450K market, good luck, dreamers! 😉

  • 60 Steven // Apr 26, 2009 at 12:34 pm

    “Never had to hope others would fall so I could rise, Steven.”

    Yes I agreee with that, Thats because you didn’t have to hope and you could afford a house comfortably,
    And therefore you didn’t have to hope

    Rich bastards who own more than 1 or 2 houses are the Greedy ones, and for that greed I have to pay the price, and guess what I AM NOT going to play into your hands and spend my whole life paying off a house just to make GREEDY CAPITALISTS even more rich

    Your the ones who created the problem so You are the ones who should pay the price for your greed when the market crashes,
    I didn’t create the problem, so why should I have to suffer the brunt by spending my whole life being a slave to the bank and Investors?

    Your the ones who should pay the price because YOU and your like Created it
    NOT ME

    Like I said why should it cost you 3 times your wage back in the day
    And it cost me 10 time the wage?

    If house prices still cost 3 times the wage like they should the money I have saved up I would be 2/3rd the way of owning an averahe house out right by now

  • 61 Greg Atkinson // Apr 26, 2009 at 12:44 pm

    Steven…all views are welcome here but let’s go easy on the abuse. I think if people have worked hard and own two houses then good on them. From my memory it has always been a struggle for most people to get into their first home.

    I wish you well in you efforts to get a home of you own, but let’s not hope that others suffer financial hardship for that to happen.

  • 62 Steven // Apr 26, 2009 at 1:31 pm

    Greg if it does happen the financial hardship will be brought on by themsleves by being greedy,

    Did they consider our financial harship when they wanted to buy 10 houses???
    That would force people to pay 10 times their wage for a house???

    No they didn’t consider our financial hardship all they considered was their own personal GREED

    Do you agree with that?

    So NO I don’t care if they suffer financial hardship because they didn’t care if we suffered financial hardship in the first place

    A bit of tit for tat

  • 63 Biker Pete // Apr 26, 2009 at 1:48 pm

    Jeez, sorry to rattle your cage, Steve. When you’re just a little older you’ll realise that ‘the greedy rich’ as you term them, aren’t likely to crash’n’burn even if house prices halve. Most of us ‘GR’s diversified. Most of us moved assets before shares, super or cash crashed. Positively-geared, we’re immune from the kind of wreckage you wish on us. In my family’s case, for example, our super would pay off _all_ our property holdings outright. Both my kids, mid-twenties, will buy very, very substantial homes (cash) when they’ve decided where they’ll live. They didn’t become wealthy bitching about others’ wealth; they applied an excellent (state) education to fundamental principles and worked at their goals from their mid-teens. Wishing harm on others is not healthy, Steve. While your anger causes _me and mine_ no harm whatsoever, hatred is akin to cerebral cancer… and you need to either get a more realistic plan for the future, or see someone about your health…. .

  • 64 Steven // Apr 26, 2009 at 2:22 pm

    Well biker Pete,
    Your hypocracy is stunning

    Didn’t you wish harm upon us by buying all these investment properties in the full knowledge that your aim was for those properties to rise substantually in value [far outpacing inflation] in the the aim of making yourself more wealthier and as a consequence of that wealth trying to bring HARM [as you put it] onto young Australians, and Australians who aspire to owning a home

    I can sniff a sence of hypocracy.

  • 65 Greg Atkinson // Apr 26, 2009 at 2:26 pm

    Steven, we are sort of getting off the point here so maybe we can end this round of debate and you and Biker Pete can agree to disagree.

    All I can say is that when I purchased my first home in the early 1990’s it did not cost me ten times my salary. This is was not because I was highly paid, but because I had to cut down my expectations. I had been in the workforce for around 10 years, saved money but there was no first home buyers grant back then so a home on its own block of land was not really an option. Instead I settled for an old attached home that had only two bedrooms and no car space, which suited me fine because I could not really afford a car. I worked shifts (including nights/weekends) and got on with life. No doubt there were people vastly better off than I was, but getting annoyed about this hardly helped me pay off my little abode nor would it help me ever get ahead.

    I agree that house prices are high and that it makes it tough for people. But I do not think there are a lot of people investing in homes just to cause pain for others. There are a lot of factors at play and maybe I can try and discuss those in another post.

  • 66 Steven // Apr 26, 2009 at 3:10 pm

    Greg if you payed 10 times the average wage in 1990
    There is probably a good chance the house would be located somewhere like Mosman or Palm Beach, these days 10 times the average wage would get you a house in Liverpool or Parramatta

    It just makes my blood boil that people like Biker Pete have the hide to say to me “Wishing harm on others is not healthy”
    When its quite obvious they were the ones wishing harm on us in the first place due to their greed as I explained in my previous post,

    So don’t get angry with me Greg

  • 67 Greg Atkinson // Apr 26, 2009 at 3:21 pm

    Steven, no problems….I am not an angry sort of guy 🙂 Anyway I never made it over the bridge when looking for my first home, I knew that was out of my league!

  • 68 Biker Pete // Apr 26, 2009 at 3:39 pm

    Yes, you’re correct, Steven. We meant you great personal harm when we set out to retire independently. The concept that we couldn’t survive on an old age pension never once came into it. “Let’s screw Steven and his mates!” we connived, conspiring to drive 20-year-old cars, grow our own fruit and veges and plan for the future; all part of a decade-long vendetta against struggling young people. If it makes you feel better, I still drive a 1988 Honda Concerto you’d sneer at, when I’m not a grey-haired biker on an ’87 Transalp beside you at the lights. Mate, your paranoia isn’t healthy. You should find that bridge Greg mentions… and just get over it… . Move on… 🙂

  • 69 Steven // Apr 26, 2009 at 4:02 pm

    Yeap biker Pete your last post was just rubbish mate…..

    I proved you wrong and you have no answer to what I said

    Thanks for your greed mate,
    “Let’s screw Steven and his mates!” Well thats exactly what you have done

    Like 1 nice house wasnt good enough for you you had to be greedy didn’t you and make other worse off for it

    “Mate, your paranoia isn’t healthy. You should find that bridge Greg mentions… and just get over it… . Move on… ”
    So I should be just happy and contempt with paying 10 times my income and spend 30 years doing it all in the knowledge that I am helping you and the likes of you pay for you retirement and making you rich, Yet you only had to pay probably 3 times your wage for your house back in the day,

    Yeap your right I just should be happy about it paying for your retiremnt even though you did nothing to earn it
    HAHA

  • 70 Biker Pete // Apr 26, 2009 at 4:10 pm

    Yep, ‘contempt’ sums it up, Steven. Your illiteracy in previous posts indicates you won’t understand that comment. You learned _very_ little at school and your parents’ example has taught you little since. They probably need to nudge you off that safe nesting branch so you can learn to flutter and eventually fly independently. Good luck with that… . 🙂

  • 71 Steven // Apr 26, 2009 at 4:16 pm

    Well Pete in that last post you didn’t address the issue I made in my previous post all you did was just dribble,
    Proves to me that you have NO answer to my last post because you know I am correct and therefore have to dribble because you have no response to what I said

    Rather sad really, You just enjoy your retirement whilst others slave 30+years to pay for your lifestyle when you did nothing to earn it

    My

  • 72 Biker Pete // Apr 26, 2009 at 4:31 pm

    Well, gosh, Steve, I expected you to come back with a response telling me you excelled in English (as well as Maths!) at school. Be ‘contempt’ with the fact that you will always have _numerous_ excuses for underachievement. Your ‘cargo cult’ (look it up) mentality means that life will continually surprise you with its failure to reward you for just flapping and squawking about on the nesting branch. Thanks for your well-wishes for our retirement. I’ll ponder on these while digging the soakwells for our latest project this week. Time you feathered your own nest, Steven Seagull… .

  • 73 Steven // Apr 26, 2009 at 4:43 pm

    HAHA
    Yeah just rubbish once again,
    Not addressing the issues

    I have over 100,000K saved up at 23, would you call that an underachievement?
    And I actually worked for it, unlike you who did nothing for the money you invested in you just sat there and did nothing for it

    We need some good social policies in this country like your only allowed to own 1 home, I don’t have a problem with rich people going out buying nice houses in nice areas, but when people start to invest in order to make money and make other worse off, that what I have a major issue with that

    You only need 1 house to own, the one you live in

  • 74 Ned S // Apr 26, 2009 at 4:54 pm

    Steven – You are falling for a bit of a line if you think there are very many older people in Oz who own 10 houses. I imagine there are some – But I surely don’t personally know any? And I sure do know some who have a pretty hefty mortage on the one and only house they do own because they’ve done things like dipped into the equity to buy a second car and provide for their kids over the years. And I’ve also know a few who don’t own a house at all – And who from what I can see, surely never are likely to own one.

    Like Greg says, getting a start in property has always been a challenge. No point debating whether it is harder now than ever – It very, very well may be! But either way knowing that, is of no practical help to you.

    So here’s some thoughts that might be of some possible use(???) – Specifically, some past approaches I’ve seen people use for getting a good solid initial stake in residential property. I’ll break them into three groups:

    1. The old fashioned work real hard live frugally type approaches:

    a) Buy land with another party (or another couple) – In the boondocks if necessary – Because you want to be cash buyers if at all possible. Then spend every spare bit of time and every bit of money you can scrape together over the next several years building it yourself with your own two hands (except the bits like the electrics and the pressure plumbing that the law won’t let you do) – No one needs a degree in anything to draw up a plan for a basic concrete block box with a tin roof on timber roof trusses and build it – Despite what builders might like us to think. Although you do need to have done a TAFE course nowadays I gather and it sure helps if one of you owns a beat up old ute and you do need to do the necessary research on the building products you’ll be using and have enough maths to work out things like volumes of concrete needed and how to draw a right angle triangle and know how to use a water level. (I doubt it is many people’s preferred option – But I went into it in some detail as is the one I used.)

    b) Buy a house in joint names with someone else (or as two couples? or as three singles? there are lots of variants)- Live there together – Get the mortgage down – Then some party/s sell their share to the other/s – With the other party/s repurchasing and they do it all again.

    c) Buy a place with some spare capacity and live in one bedroom youself (with your partner if you have one) – Rent the other bedroom/s out – Make the property work for you to earn income you can throw at the mortgage. But be aware it has a downside – There are capital gains tax implications. But the upside of that is that you also get the negative gearing advantages.

    Some other things that can help with the frugal hard work based option:

    * Work a second job (not so easy right now I guess – And probably you won’t have time for it if you go for option a) above, but I mention it because it helps a lot if you go with one of the other options.)

    * Avoid credit cards like the plague – If you HAVE to buy it on credit that automatically means you CAN’T afford it, so you shouldn’t be buying it unless it is virtually life and death type stuff

    * Live frugally. That means different things for different people of course. But basically it boils down to every time you are considering spending a buck, ask yourself whether that buck might not better be spent on your house? Only you can make that decision re any particular purchase.

    2. The be way way smarter than average approaches:

    a) Become a real smart investor in stocks and currency or whatever until you’ve earned that way for a good house deposit (I never felt I especially gifted like that – And didn’t like the risk levels at all – But I know at least one younger couple and a single bloke who I think were giving it a crack?)

    b) Get a Law degree or a Medical degree so you are actually earning enough money to pay off a house the way the system sort of accepts as “usual” now. (yeh, I know – Not that helpful at all – If you were one of them you wouldn’t have a problem and becoming one is a heck of a lot of hard work and pretty costly anyway.) But the basic point is increase your earning potential as best you can maybe? Some extra training helps most of us at some time or other.

    3. The be Patient/Blessed type approaches:

    a) Inherit it (although you might have to wait until you are 70 odd – I think that is about the age when my uncle got his first home?)

    b) Be given it by loving parents before they die (that worked for another person I know – Those benevolent parents had used the hard work frugal type options over a period of about 35 years and found they had enough to buy their child who didn’t have a house a pretty humble home and chose to do so.)

  • 75 Steven // Apr 26, 2009 at 5:04 pm

    Thanks Ned S I apreciate your input,
    But the point I was making is it is so hard for us young people today as I said 10 times average income compared to probably 3 times when my folks got this house

    But yeah good point when you said “every time you are considering spending a buck, ask yourself whether that buck might not better be spent on your house?”
    LOL thats what I do now thats why I got 100K, Im so much of a tight ass 😛

    But yeah I will be looking to buy a place by myself for the moment when they drop hopefully

  • 76 Biker Pete // Apr 26, 2009 at 6:13 pm

    Some excellent points, Ned. Congratulations on being able to put aside $100K by age 23, Steven. As you stated in your first post, you certainly don’t need that $21K FHBG. At 23 I had nothing but my first degree… stony broke… so you’re in an excellent position to buy, whether prices fall or not. If they do, you’re laughing! If not, living at home and paying board IS a worthwhile saving strategy. And as Ned suggests, none of us lives forever. You may have to pay nothing whatsoever for your first home… . That’s a cost / earnings ratio which _must_appeal to your filial sensibilities.

  • 77 Ned S // Apr 26, 2009 at 6:18 pm

    Steven – Just read your exchanges with others after sending mine. (And since then your reply to me.)
    If you have 100K saved at 23 you are doing real well I reckon and don’t need any advice from me at all I suspect!
    Although it does sound a bit like the Sydney market is a real tough one for young people story – Sydney seems to have it’s own pretty specific issues re the property market at the moment that I’m not at all up to speed on.
    Good luck with your punt on the market – And I mean that most sincerely.
    Ultimately the best any of us can do is try to inform ourselves as best we can on whatever specific markets interest us and then play own hunches I guess.
    Cheers!

  • 78 Steven // Apr 26, 2009 at 7:00 pm

    Thanks guys
    but biker Pete you know when you were 23 and stone broke
    You were actually in a better position than me with having 100K now
    Because with the ratio of 10 times average wage compared to 3 or 4 times back then,
    You still would have been alot better off than me with 100K now

  • 79 Biker Pete // Apr 26, 2009 at 7:37 pm

    …and when we bought our current, existing property, the interest rate was 18.75%, Steven. That was around $37K in interest, annually. We blew nearly $200K in interest! Worth it, because the property is now worth 7.78 times what we paid; but at the time, 18.75% seemed like a lot, even to a 42 y.o. I remember giving my old man a fair bit of stick about his Returned Services interest rate… around 2%… . We were paying over nine times that rate… .

  • 80 Ned S // Apr 26, 2009 at 8:10 pm

    Biker – You’re squabbling over side issues I reckon? Hey, we’ve got a good a good one here – A 23 yo in Sydney who has put aside 100K. And wants to put it towards benefiting his future. In the best and wisest way he possibly can. This is a pretty impressive young man mate – Providing he didn’t make it selling really nasty drugs to school kids maybe? – And I have a very strong suspicion he didn’t! Because you wouldn’t get that degree of anger out of someone who got their money the hard way perhaps? Let’s see if we can work with him hey? Blokes like this just could be the salvation of our country. And they are a bit thin on the ground. More from me soon … I was working on a thought.

  • 81 Greg Atkinson // Apr 26, 2009 at 8:25 pm

    Maybe I need to do some research and write up a post on how we could make homes more affordable? Maybe finding a way to do that would not only be good for people trying to get a start in life, but would also help the nation?

  • 82 Ned S // Apr 26, 2009 at 8:48 pm

    Yes Biker – I remember the 18% interest days too. But will spare you the details.

    But my Dad paid 50 Quid for his first block of land – And 400 Quid for his first car!!! (“preloved” I’m sure). When I’d guess his annual wage was maybe 250 Quid?

    Whereas I thought I was big time when I cracked $5,200 pa take home – And my preloved car was maybe worth $3,000 – While a lousy mangrove front block of land in the boondocks where I was cost $6,000 – Heck, if I’d sold just about everything I had (including the car most especially) I could have bought that block of dirt – But I didn’t because I needed the money to get an education.

    And later on when I had bought a house for $60,000 – a rotten computer cost well over $3,000 – One didn’t even consider buying a printer – that would have been really silly. The thing was bought to earn income from – And I could print out stuff elsewhere on an as required basis.

    So things change over time – But the short answer is that it has never been easy for the working class to get a start – I think? (Back to that thought I was working on.)

  • 83 Ned S // Apr 26, 2009 at 9:03 pm

    You got your last comment right I reckon Greg – The trouble with our politicians is they think in terms of how they can benefit their businesses – On the assumption that will be good for the people maybe? Rather than the other way around. But back to that thought I was working on.

  • 84 Biker Pete // Apr 26, 2009 at 11:18 pm

    No, my point was a little too obscure. It was simply that there have _always_ been federal subsidies for homebuyers. In this case, my old dad, retiring, was able to benefit from an incredibly generous government subsidy to purchase a rather impressive valley property at a ninth the interest rate I had to pay for my home. For him, it was a FFBG… where the second F is farm. I was also intimating that 5.11% is a helluva lot better rate than 18.75%. In this forum, that’s simply what Gore might term an unwelcome fact… . I disagree about the political inferences a little; although both L governments would act similarly given the current scenario. Neither would welcome a scenario in which our third largest industry went under. I’d suggest that if/when that occurs, many Aussies will have a raft of major issues, with loss of shelter added to unemployment, transport issues, even hunger. Yes, $100K _saved_ at 23 is impressive. The misplaced anger isn’t. It’s not uncommon in several indigenous cultures, some of whose young apportion direct blame on another generation whose forebears ‘stole’ _their_ property… to justify intense hatred. Many of them, penniless, might in fact view a 23-yo with $100K as a greedy rich capitalist b*stard ripe for culling. It’s all relative, isn’t it? At the end of the day, Steven is gambling that property will fall, not rise. That’s his call. I’m gambling that property is _safer_ than the alternatives; even super… on which we are still making 17% per annum… and pulling a double TTR annuity tax free, on top of other income. (That can’t last, can it?! 🙂 )
    Patience, flexibility and a counter-cyclical approach to investment may still serve us in the future; and I certainly won’t criticise Kevin Rudd for assuring Steven his $100K is safe in the bank, or Bill Bonner for assuring him it’s safer in precious metals… .

  • 85 Ned S // Apr 26, 2009 at 11:39 pm

    Steven – I’ve been reading a bit of stuff about house prices compared to average incomes lately. The number of 10 is a “Sydney’ish” sort of thing I’m guessing? But either way my basic read is that the average used to be something like 3.5 as you say and it is now more around the 6 mark or a bit over after having dropped back from being closer to 7 maybe – Albeit with much of the drop having come from your more basic McMansion type property with not all that much exceptionally special going for it in relation to location perhaps? Which is still all pretty vicious; Doesn’t matter how you slice it.

    My Dad is a pretty astute older gentleman and has an interesting take on the reason why it is so – It isn’t a politically correct view at all – And I think he places too much weight on it. But as I also think it very well may have contributed, here goes:

    It’s “those women in the workforce” he reckons – I did say it wasn’t politically correct Yes?

    But I can see his general point. There was a time in this country when families tended to have one and only one breadwinner. So there was one wage to support a family. And prices (including house prices) had to reflect that – On balance over time – Can’t get blood out of a stone so to speak?

    But as more married women entered the wokforce, (forget the unmarried ones – they’d always been there); families had more disposable cash and could and DID bid house prices up. I’m not certain that my Dad’s argument holds water(?), but I sure can see the uncluttered, unsophisicated, straight to the point real basic logic behind it.

    I reckon a lot of people will disagree outright – Fine, that is their right – And he just may be out and out wrong. But I must admit I’d be happier if any dissenting voices didn’t confuse the basic issues that underly the Feminist movement (womens rights to work, fullfill themselves, be all that they can be, be independant etc) with the pretty basic thought that one wage per family means only half the price per house as two jobs per family.

    So his argument is basically that in the good old days only one wage per family was needed to pay off a house. But now we need two. Because in the good old days there was only one breadwinnerper family, whereas now there are two – So the old “working class” which favoured the old ways, by evolving into a more enlightened but ultimately more materialistic class by progressing through the “let’s have ladies be all that they be/let’s have two wages per family/let’s get ahead a lot class”, has shot itself in the foot by having two breadwinners per family rather than one to push up asset/house prices)

    Is there any fundamental validity behind such a thought? A graph showing how house prices compared to average family income (as opposed to average individual income) over maybe 50 years minimum, could be useful in shedding some further light on the contention. (No chance of me digging one up though – Sorry – I’m just a bit pressured for the next two months minimum – But would be interested if anyone else has the time?)

    The reasons I disagree with my Dad’s thoughts being a full explanation, basically boil down to the thought that “Family ain’t what it used to be” – Namely, given higher divorce rates over time, we still have a lot of single income families at any one point in time now.

    So there is more to it – Some more thoughts on that tomorrow. I’ve got to crash or the thoughts just could come as as totally indefensible gibberish?

    Two quick thoughts re that:

    * There were/are LOTS of baby boombers – with never quite enough to go around (given that they did want/enjoy the good things and tended to strive for them – for themselves and their kids) – So they were pretty competitive – and battled against each other for them – and that forced asset prices (including house prices) up.

    * Government and banks and builders et al cashed in big time – Hey these dills ARE going to fight. We can cream off some real easy profit as they do – just encourage them to keep

  • 86 Biker Pete // Apr 26, 2009 at 11:52 pm

    Your father may be on the money, Ned. Amused by your belief that “We can cream off some real easy profit… . ” Hadn’t pegged you for a property speculator! 🙂 Frankly, I think those days are gone. I’m content with 5-10%… if you’ll excuse the doggerel… .

  • 87 Ned S // Apr 27, 2009 at 12:23 am

    Biker Pete – Never got my last post finished – I’m real tired here and hit send before completion. I needed to work on the last “Two quick thoughts” – Because it was shaping up to be three.

    The “cream off some real easy profits” comments came across wrong to you as a result perhaps? As I was thinking in terms of the governments and the banks and builders doing the creaming. Rather than me. (Not that I have moral ojections to someone creaming off some quick profits – Unless it is our governments and they are creaming those profits off us! I lean toward the notion that government should adopt a “public service” function rather than a “profit making” one – Smile.)

    More later hey? …

  • 88 Biker Pete // Apr 27, 2009 at 8:26 am

    It’s likely Rudd’s plan for more public housing will reduce demand for housing and rentals. We’re quite comfortable with that, providing slums and ghettos aren’t the result. Public housing will meet the needs of the homeless and those who are in transition, but our rentals serve the ‘middle end’ of the market; up to $450.00 per week. That’s an interesting market, since recently it has actually attracted tenants who rent out their McMansion at $650+ per week and pocket the difference… . I think that’s where Keen may be onto something. Properties in the ‘upper end’ of the market _have_ lost a lot of their $hine. Clearly owners under mortgage stress aren’t prepared to let them go cheaply. The strategy they’re employing to ‘wait out’ the market appears to work, particularly in today’s low-interest scenario, but even if rates rose, tax benefits would compensate them adequately. This is an interesting development which Keen may or may not have anticipated.

  • 89 Ned S // Apr 27, 2009 at 8:33 am

    Biker and Steven – Re Steven being angry – It’s impossible to talk for anyone else of course – So just take a PURELY HYPOTHETICAL case maybe:

    If I was a 23 yo who had been making a fair few sacrifices (in comparison to my peers who to tend to judge myself against – including maybe even choosing to continue living at home and put up with the oldies house rules rather than rent with my mates because I could afford it and that would let me enjoy life now a lot more but chose not to because I’d really rather save the money) and to work that bit extra and save that bit extra and get 100K in the bank, basically in view to getting a leg into property, with as small a mortgage as possible, because common sense was telling me those big mortgage things are killers – good for banks – but maybe not so good for me, and also watching house prices go up more and more and seeing my goal getting harder and harder to achieve, but saying this is all a bit crazy, it can’t keep going on like this forever, something has to give, my wage isn’t go up a whole lot, so house prices must surely come down??? (and didn’t fully understand just how hard government and banks and builders will fight tooth and nail to stop house prices coming down), and finally began sense Yes, this just might be it, I just could be about to get my chance, house prices look like coming down and my hard work and sacrifice are about to be rewarded – Only to find that the government had just upped the FHOG to do its best to stop house prices coming down through giving bigger freebies to my peers, thereby effectively reducing the comparative advantage I’d been gaining by the hard work and sacrifice and saving, and also seeing the interest rate being dropped like a stone – again to keep house prices high, and feeling that my dream just might be about to slip away from me again – But that “this lot” are really just trying to suck me in to their crazy game with bigger freebies and lower interest rates when house prices are really high, then I might be feeling a bit hard done by. And feeling a bit of anger.

    Where am I going to direct that anger? Not at myself most likely – Because I feel I’ve done lots of good and responsible things. Not at my peers most likely. Because every generation tends to feel it is just a bit more switched on and has it together just a bit more than the last lot (leastways at 23 most of do because that’s what all our mates seem to think.) And not at the government because they have such a highly sophisticated PR machine pushing the line We are the good guys – We’re here to help – See – Look at the freebies – See – Look at the low interest rates! And not at any global power that may have contributed a real lot as well to the boom in asset prices everywhere in the world over the last decade at least – By holding its interest rates at real low levels plus doing lots of other silly things with its economy as well – Because by and large that line isn’t being pushed by world governments too hard because they are still trying to bail themselves out of this GFC mess by playing nicely together rather than resorting to any really serious finger pointing – So that view isn’t really well published just yet.

    Nope, I’ll buy the line that it is those greedy Australian baby boomers I’ve heard about who went and bought 10 houses when they only really needed one. At least from my perpective at 23 when I’m thinking in terms of one house is WAY good enough. Because I’m also maybe buying that other government line that superannuation will see me right for my retirement. So I’m not particularly thinking terms of that fact that some of those greedy baby boomers didn’t trust government and government controlled super all that much and thought it just might be smart to try and hedge their bets by getting a “spare” house or three under their belts for their retirement. Because they reckoned if push ever really came to shove houses just could have a bit more intrinsic value than CBA shares maybe.

    Just a thought? (Albeit a long one.)

  • 90 Greg Atkinson // Apr 27, 2009 at 8:49 am

    Biker Pete & Ned S – the points you raise in the above few comments makes a great deal of sense. As I have suggested in my blog posts there are a few big problems when we start looking at the historical cost of housing. For one thing a house say 20 or 30 years ago was a lot different to the sort of new houses they are building now…these days 3-4 bedrooms and a double garage seems almost default. Also as you say Ned, incomes per households may be higher and in some ways I suspect costs per household may be down. (less children per home) Of course this would be offset by the higher number of singe parents homes and childcare costs for example. But in any case the amount of income available to for housing would also change over time because the tax rates change and we had the GST come in. (now there is a tricky little variable to factor is) Perhaps you can see why I roll my eyes when people then starting comparing houses cost in Australia to the U.K and U.S! What exactly are we comparing?

    Then as Biker Pete mentions we have to take into account interest rates and of course how government support for home buyers has changed over the years. Then to make a fair comparison we would need to convert everything into today’s dollars.

    I have been looking for a graph/set of data that takes into account all the variables but I have not found one. The most meaningful graph in my view would look at the cost of new and existing housing in today’s dollars with adjustments made for the change in the size of the average home. This could then be compared to a graph showing after tax income per household again converted to today’s dollars.

    As for the Sydney market, there is no Sydney market in my view. (I am a Sydney boy) It is a number of vastly different markets and should be treated as such. I think get a really good look at real estate most capital cities would need to be broken down in smaller markers otherwise the median prices keep getting distorted by harbour side mansions with a pool and private jetty.

  • 91 Biker Pete // Apr 27, 2009 at 9:40 am

    Some very valid points, Ned. I disagree with the line: “…to find that the government had just upped the FHOG to do its best to stop house prices coming down…” I genuinely believe that both L governments would see home ownership as preferable to public housing. The latter takes a savage beating, literally, here in WA. It’s a major lo$$-maker, due to ongoing maintenance and repairs. On the other hand, government stimulus of what _Aussies_ term ‘The Great Australian Dream’ has positive political clout. And the need to keep construction firing, as our third major industry, may have more to do with staving off unemployment than the need to prop up home equity. Ultimately I sit near the other end of the continuum, in this forum. While the neo-marxist belief is that no-one should be permitted to own more than one home, my travels abroad indicate it has been common throughout time. As you’re aware, some marxists believe the only land a man needs is the size of a burial plot. In conclusion, my perspective engages these thoughts: 1.) Ten months ago, when interest was high, I was termed ‘stupid’; 2.) Now it’s low, I’m called ‘greedy’ 🙂 ; 3.) My sons, who at Steven’s age have amassed much more capital, have part-ownership of six of our thirteen properties. Each son wants to purchase a beautiful home in a very desirable location… and could do so, regardless of Crash/No Crash… if they actually knew where in the world they wanted to live. Neither would be content with a 4X2X2… and I suspect that may be part of Steven’s real dilemma; 4.) While stereotyping a generation is dangerous (altho’ rife on this forum) my biased view is that the young have been raised in an era of instant gratification. That’s my generation’s fault. On the other hand, it has encouraged some of them (Steven included) to GO for it. The downside is that it has also created a culture of ‘Me! Now!’ No generation has more to ‘lose’ in a GFC, because unrelieved anger IS unhealthy. (Greg’s post has just appeared on my screen. Greg, your perception of Sydney property as “… a number of vastly different markets…” is true of much of Australia, making the notion of median price highly flawed. In WA, some markets have been savaged up to 20%; others have risen 1 – 5%. We know that, having walked through entire suburbs with camera, phone and notebook… ! 😉 (I’m off to dig soakwells, now that rain has reduced the likelihood of cave-ins…. .)

  • 92 Ned S // Apr 27, 2009 at 11:45 am

    Biker – A lot of this stuff is about perceptions – Eg my comment “…to find that the government had just upped the FHOG to do its best to stop house prices coming down …” is a understandable perception of the actions taken depending on exactly how a person feels they are being impacted by it. As would be the perception that the government has just upped the FHOG to do its best to save my job – If one was a bricklayer.

    But my posts are long enough without trying to take into account all possible perceptions at any one time. And obviously as one single individual with my own limited personal perceptions (which can and presumably will change over time), I’m so limited in my personal ability to see all perceptions that I just accept it won’t ever really be possible.

    That’s fine – I muddle along and try and listen and learn and say something when I think it could possibly add a bit of value is about all I guess?

    My take on your wealth and on Steven’s wealth – I wish you both the very best. You’ve both obviously made some sacrifices and done a few smart things to be in the positions you are in. Re Steven not feeling very wealthy, I can understand that too given what he is battling against. And it isn’t made any easier by the fact that the world just seems to have decided to have turned itself upside down financially at the moment and the best and finest minds we have don’t seem to be at all agreed or sure what to do about it. Or what the ultimate outcomes of any of their fixes really might be.

    But yes, sometimes I suppose some of us have cause to have a bit of a think about what sort of a world we might to see. At this time the jury is still out for me. About all I would be prepared to say is that I am pretty sure working hard and being smart both deserve to be rewarded. But that the not so smart should still be able to expect the basics in life plus a bit extra if their society is wealthy enough to give it to them. (No “crime” in not being smart for mine.) And with their kids getting a very genuine opportunity to do better than their oldies if they can. As to the out and out lazy – I tend to feel that they should get very little, at least until they lift their game. But I wouldn’t want to see their kids disadvantaged in the process. And do like the idea of living in a world that gives us the freedom to choose just how hard working we might want to be given a general awareness of what the comparative rewards might be. Plus the opportunity to get smarter (to the limit of our individual abilities) if we choose to take it.

    That’s real broad brush stuff. And one can poke all sorts of What if, But how about, type questions. That I probably would have no answers to.

    Gotta go. Safe and successful digging!

  • 93 Ned S // Apr 28, 2009 at 11:40 am

    Another broad brush comment- Aussies value houses a lot and are prepared to pay a pretty high premium for them – Or at least they certainly have been recently.

    Seems to me that some of the Aussie housing boom has a cultural aspect to it. As in what does one’s culture (as affected by such things as its stage of “development”, collective rememberance of its history, overall view on the general wellbeing of their community being important as opposed to the individual’s right to get ahead etc) predispose them to use as a yardstick indicator of true wealth (where “true wealth” is maybe just an asset that is perceived as having an ability to hold its value over time maybe? Some examples:

    * Romans in an agrarian based society liked farmland a lot – As in ones who didn’t have a plot very well might choose to give up a decade of their life serving in the legions to get a piece of it.

    * Under the old Soviet system where private ownership of just about anything was impossible, it tended to be things like one’s position in the hierarchy and one’s contacts – As in who one knew who could pull the right strings for them and would reciprocate for them when the time came I’m guessing. Plus a stronger overall sense that what was good for the community generally would ultimately be good for you and yours with a willingness to pay a bit higher individual price for the perceived collective good than the citizens of a lot of other societies – A potential source of a some pretty severe disappointment if one sees the entire community’s economy collapse I gather?

    * Indians seem to like gold a bit more than the world norm. (Providing they can still get it for an acceptable number of rupees it would seem?)

    * One pretty much undeveloped society I know still incline to the view that pigs are it.

    * Americans (if my take on it is correct?) have had a bit of a thing about stocks and/or bonds for a long time now.

    * Aussies – Yeh, houses have been the go; most recently.

    * But before that (in Oz) it was farmland – Thus the “rich cocky” expression one would hear bandied around once upon a time – [cocky is an older Aussie colloquialsim for a farmer; albeit a small farmholder] – And most typically used with a few somewhat envious and even derogatory connations by those who maybe felt a bit less privledged and saw themselves as having to “work” for a living. With “cockies” not especially appreciating being referred to as the same of course.

    * I wondered about Germans – No housing boom there I’d heard of? Could it have been they had a collective rememberance of just how unreliable a store of wealth a house might be if it was in Dresden before the firebombs fell or in Berlin before Jo Stalin’s boys paid a visit? Nope, not so – Apparently they aren’t that paranoid – They just had their housing boom a decade earlier than the rest of the West during the East/West reunification days. Similar timing to Japan perhaps? (The Blog Author Greg Atkinson will presumably correct me on that if needed … Greg?) But either way, with both countries finding out they’d maybe gotten a bit carried away in hindsight apparently.

    * Interesting that the Germans don’t seem too keen on the QE idea though. I’m guessing all the not so nice stuff that came from the Weinmar Republic’s shot at QE, was just SO NOT NICE, that even after all these years their collective rememberance of it is still strong enough that it might be inclining them to value currency stability a bit more than most???

    * Globalisation – Across the world there has been a a tendancy for national values to tend to converge over the last 20 years or so especially – From what I can see? Assuming that continues, I wonder how that will affect people’s perceptions of what things are true stores of value (ie wealth) mid to longer term? Suspect it will still have strongly regionalised aspects to it.

    Where do those sorts of thoughts lead one in relation to the blog topic of House Prices in Australia? Plus anything else. We all add our own thoughts and make our own minds up I guess. Dunno if any of it contributes anything much at all really? But I’ve written it so might as well post it I guess.

  • 94 Steven // Apr 28, 2009 at 3:33 pm

    Yeah but the thing is biker pete,

    You would have been better off than me when you were 23 being stone broke because it only cost something like 3 times the wage, i know you talk about interest rates, but if you had done the same thing as I have done now and saved up about two times the average income [100K in todays money, don’t know what it would have been back then]
    Then the thing is you wouldnt have to worry about Interest rates because you wouldnt have to pay interest if you could almost pay for the property outright
    You know what I am saying?

    So yeah You were in a much better position than me at my age when you had nothing

    But I have a funny feeling and I really do, that house prices are going to drop alot here,
    I mean its happening in every other country in the world, I think we are the last straw to fall,
    And to add to that also we are the most over priced market in the world in regards to how many avereage wages it takes to pay off average house, by ALOT,

    What I think will happen is that prices will start to fall a bit, then what will happen is people in the same position as me will think, ok they are falling so I am not going to buy now if they are falling because they will continue to fall, then when they fall a bit more, the same thing, ok well I am not going to buy now because they are falling so they will probably continue to fall, and so on and so on until they maybe half in price……

    Its the exact same thing as when property started to boom but in reverse,
    When property started to rise a little people panic, and think ohh I had better get in quick before they rise further, then other people see the bubble continuing and start to panic ohh I had better get in and buy something and be prepared to pay a little extra so I can get in there, and so an and so on, Until they get so expensive [9 or 10x times the average income]
    Then people start to think why bother they are so overpriced I am never going to afford it, and when that starts to happen the reverse happens as I stated in the previous paragraph…

    Its happening in UK, USA, Spain, everywhere really,
    I just can’t see it happening there and NOT happening here

  • 95 Biker Pete // Apr 28, 2009 at 3:34 pm

    A fairly comprehensive piece, Ned… mostly highly relevant. There are three ideas worth adding; one of which is the history of _serfdom,_ that state of existence in which most of our forebears worked the master’s land in exchange for tenancy. Home ownership was no doubt perceived by many as a new _freedom._ Now we could argue that all that is too long ago to be part of today’s cultural makeup… but we know that attitudes persist through many generations. Another aspect worth consideration is that the family home, when sold, is _free_ of capital gain. In a time of minimal capital growth, that aspect may seem inconsequential, but prior to the GFC, Australians sold their homes every five years. As a child, I recall our family ‘stepping-up’ through no less than six homes in fourteen years. For my grandparents… and later my parents, there was a cultural expectation that _that’s what Aussies do._ I’d argue it’s not uncommon, if we as citizens are changing homes every five years… . I’d expect we’ll see that become seven-to-ten years now. The data shows that Americans are staying put longer, due to the GFC, despite the opportunities which their predictible housing crash (no lending controls, no minimum wage, etc) must afford those with large cash reserves… .

  • 96 Biker Pete // Apr 28, 2009 at 4:07 pm

    My eldest son (26) would probably agree with your predictions… but I was a little horrified when he recently put $700K into indexed funds in the ASX, Steven. Fortunately he has spread his risk, with property, cash and super.
    I think Ned answered your comments in relation to the wages: house cost issue incredibly well. It is explained by the double-income earner effect. My own wife earns around $80K pa; and, due to salpacking, it’s mostly tax free. I’m also certain each generation believes that previous generations had it easier. I know I did! And if you look back a hundred years or so, there are some amazing perceptions about the future. One bright spark complained that everything worthwhile had already been invented. In that scenario (there’s nothing left for us!) believers in that statement must have been pretty disillusioned! I’m an optimist, but I’ll grant you the _possibility_ that your prediction _may_ come true. Certainly there are hundreds of thousands of Aussies who think the same way as you do. I’ve little sympathy for those who sold homes at the top of the property market, whacked it all into shares, blew over half… and who now complain that $400/wk is too much for one of our rentals! Most have shiny new European cars, but they rarely come back to take on a tenancy… . It will be interesting to see how it all plays out later this year. I’m riding across America and I’ll be interested to see the suburban wastelands and deserted malls we’ve all read so much about… .

  • 97 Greg Atkinson // Apr 28, 2009 at 5:25 pm

    Steven, I would think that prices across some areas might fall (and already have) but I am not in the price crash club for some of the reasons I laid out in:
    Why prices may not collapse The thing to take into account is that the style of home loan in Australia is different to the U.K and the U.S and this makes a big difference. Also we did not have the subprime loans like the U.S. so that is another major difference. In addition think traditionally Australians will only give up their homes after a fight and are less likely to hand back the keys and walk away like in the U.S.

    Anyway Biker Pete might fill us in after his travels across the United States..maybe he can even get online and give us live updates from the field? 🙂

  • 98 Ned S // Apr 28, 2009 at 6:58 pm

    Steven – I personally incline to the view that Australian housing prices are a bit more likely to go down than up at this time on average too. BUT I could well be wrong because there are some pretty powerful influences being bought to bear against it. And even that might not necessarily help you as much personally as you are hoping for as I mentioned in a previous post. But in truth I really don’t know. We all have our own hunches of course, but these are also not usual times we are living through just now. A few more specific comments:

    * It may well be that house prices being are 9 or 10 times the average salary where you are either isn’t “fair”. But whether it is or is not fair, is not in itself going to change it. Other things might.But the fact it isn’t fair won’t, because the world has never been a fair place and never will be from what I can make of it. So one bit of sincere and well meaning advice I’d give on that is to try to cease thinking too much in terms of whether the current situation you find yourself in is fair or not. Because whether it is fair or not, really isn’t very relevant at all to how do you achieve what you want – Which is to get a house. Even Soviet Russia which in many ways actually tried way harder than most societies to be “fair”, never suceeded. And their economic system did ultimately fail catastrophically causing untold misery to many millions of people. Which does have to make one wonder just a little bit being “fair” is the be all and end all to having a healthy and sustainstainably economy??? (But then maybe it failed for totally unrelated reasons – I’ve certainly not studied it in detail.)

    * From what I can make out Biker Pete has been pretty jolly successful. And from what I can also make out, often people who’ve managed to be reasonably successful have done so by having a few clues on how the system works, being hard working, making some sacrifices, being a bit smarter than the average bear and possibly having had a few sleepless nights along the way over some of the punts they’ve taken (at least until they feel pretty confident they’ve “arrived”) I guess??? – Plus a bit of luck maybe – That always helps – Smile! (Even though it isn’t a particuly reliable investment strategy – The basics need to be there as well to continue being lucky for long term I suspect?)

    * But either way if I was 23 yo and could find myself someone like Biker Pete to talk to I’d by paying a lot of attention to what he has to say rather then suggesting to him that things aren’t fair – He’s obviously no one’s fool – If he doesn’t know that life’s not always fair then I’ll eat my hat as the saying goes – And he sounds to have done quite well in spite of that fact. If I had to take a punt based on his posts I’ve read my strong suspicion would be that he has most likely done and is continuing to do what he thinks is best for himself and his family in a pretty tough, competitive and often unfair world??? That doesn’t mean that every hunch he has on the future will necessarily be right because he doesn’t have a crystal either. And I surely suspect he is recognising that when he says that he was happy to see his eldest son spread his assets across a few different classes, even though he is a bit of an old time property man at heart himself I suspect??? Because the world has been getting a few nasty shocks lately. But he is a successful man and I strongly suspect that if someone wants to get ahead themselves then having a listen to the words of previously successful people is a better place to start than most. Doesn’t mean you accept his way as the best way for you at this time. And you sure are entitled to decide for yourself whether you agree or disagree on what he thinks the most likely outcomes are. But it’s worth a listen for sure. Plus you look for some different views. And do some research yourself. And try to balance it all up for yourself. All grist to the mill as they say.

    * One thing I strongly suspect men like Biker Pete sussed (either quite consciously or maybe just at a pretty deep intuitive level) that I was never clever enough to (well not until real recently anyway), is that governments in the West have been actively targeting positive inflation for years. Which definitely doesn’t seem “fair” either if one is trying to save money for something. Because it keeps reducing the purchasing power of the saver’s money. But like I said, the world isn’t “fair” and the challenge is how to make the best of it in spite of that fact. (Will the government be successful in continuing to get positive inflation? Will that necessarily mean house prices will continue to go up even if they do? Because they are pretty pricey. There is such a thing as Stagflation of course. Plus lots of other things that “could” happen. We each have to make our own judgements on that hey?

    * One other thing – Don’t base your investment decisions too much around “hope” from what I can see – What one is hoping for is of no relevance in a hard, tough, competitive world. Getting what one hope’s for really is being lucky. And while having a bit of luck is real handy, one’s ability to keep being lucky isn’t an investment strategy I’d place a lot of faith in long term.)

    * Finally, re your comment that ” … what will happen is people in the same position as me will think …” : That is dangerous thinking I’d suggest! You are putting yourself in a box with that type of thinking. There are a heck of a lot of people who are interested in the Australian property market who aren’t people in the same poition as you. You’ll have immigrants with families they need to house who have cash in pocket because they sure aren’t all boat people for one. And the poorer ones who are prepared to buy one house between four families if that is what it takes – A lot of them are used to living together in way more “crowded” conditions than us. And I am pretty sure they would make sacrifices over and above what even they regard as their norm for a better life than what they’ve had before. And they are sometimes way more skilled/practised/accepting of the need to work together collectively than I suspect most current Aussies are. And then there are the investors. Plus others. Heck, I agree with you. I think the “average Aussie house price” is more likely to go down a bit than up on average over the next few years. [Greg puts it better when he says “prices across some areas might fall” probably?] It is even JUST possible we could see a “crash?” But I don’t want to see you get caught out by any drops NOT being as big as you might be expecting either – Especially if that expectation is based on too much hope or or too much expectation of something fair happening – And only having a bunch of other people in the same position as you to commiserate with if you find your call has been wrong. Because that still won’t have gotten you a house. But then you’ll just have to keep watching and judging the markets as best you can … As we all are eh?

    Cheers!

  • 99 Senator13 // Apr 28, 2009 at 7:24 pm

    I think that is a good summary Ned.

  • 100 Biker Pete // Apr 28, 2009 at 8:06 pm

    Yes, I agree, S13. We’re in highly intelligent company… . This is the most enlightening forum I’ve _ever_ engaged in… and it has given me some fresh perspectives I’ve never considered. _Both_ Ned and Greg are ‘on the money’. I guess Ned’s perception is correct… in that I’m an old property man, at 62. (I’ll still cross rivers in flood no-one else will attempt for two days, on a Paris-Dakar motorcycle… and drag a bogged bike down a sandhill to get it upright, though!!!) Property has always worked for us, although we have immense sums in Super… thanks to Bill Bonner’s warnings… in which we recognised certain shining truths. Sadly, my wife discouraged me from warning my 67 staff… so they probably lost many millions in super. I truly grieve for them… . Many will have to slave for another decade. I have to acknowledge my wife’s influence on our financial progress. Granddaughter of a broker who helped found the VSE, her mathematical abilities are awesome. Much younger than me, she continues to both inspire and amaze me. Our sons, software engineers at the very pinnacle, are the result of a deeper gene pool than I could ever have imagined. So my advice to you, Steven, is to find a partner from whom you can learn every day… as I do… . It’s the same advice I’ve offered my sons… .

  • 101 Steven // Apr 29, 2009 at 12:45 am

    Pete your eldest son at 26 has $700K????
    If you don’t mind me asking How is that possible? LOL

    I find it funny the way you say :
    “I’m an optimist, but I’ll grant you the _possibility_ that your prediction _may_ come true. ”
    Because you have to understand that to me my way of thinking that house prices will fall is being an “OPTIMIST”

    I have 2 option with what I can do:

    A. I buy now and get ripped off, only to find prices have halved in 2 or 3 years time and I am stuck with a lifetime of debt

    or

    B.Wait for a few years only to find prices have risen

    OK

    Well you see I am in the position of predicting what will happen and I am actually more scared of buying now only to find out 3 years down the track I have been massively ripped off, than I am of waiting and seeing prices rise

    A. scares me more than B.

    I know you talk about sub prime and how that can’t happen here, but they don’t have that in the UK either, and that didn’t stop prices falling there 20 percent last year and still falling and apparently they had a so called “HOUSING SHORTAGE” aswell, As did the USA not long ago,
    And I know that in the UK they have alot of immigrants go there and that didn’t stop prices falling

    I have done alot of research and I have been reading alot of blogs on this topic in the last month on various other sites, ABC etc, with people making comments just like here, and the majority are pridicting a big drop in prices, saying whats happened overseas will happen here.

    I know you guys are saying don’t hope, thats a dangerous thing, but the thing is I actually THINK they will [its not so much hoping, although obviously I hope they do].

    Just on another note I read today that prices in inner Darwin fell 10 percent in the last 3 months

  • 102 Biker Pete // Apr 29, 2009 at 11:21 am

    Steven, you’ve raised so many points it’s hard to address them all, but I’ll try.
    First, your notion that you may be ripped off is interesting. Our family has bought realty steadily for three decades now. There were at least three periods when a _pessimist_ might have claimed we paid too much.. that we were ripped off. On some of those very deals we made 300-800%. Those were the days in which we had a ‘screw the rich’ philosophy. We bought properties which _only_ the wealthy could ever afford to buy from us. Even better, until the mid-80s there was no CGT on property! As we matured, we realised that a win/win philosophy, in which we provided good service (high quality rentals) to the middle class, was a more defensible and sustainable proposition. As it happens, our timing was pretty good. It allows us to either sell or hold (rent) in periods like this one. But every property other than our main base is/has been _always_ for sale.

    I understand your fears about being a.) a slave to the bank… an interest slave; and b.) finding you bought at at a mid-high. (You could never claim to be buying at the peak!) Rest assured that _we_ have bought four blocks at the peak within the last three years. Yes, we paid too much. We’re still making 5%+ clear, after tax, on the houses we built on those.

    What I think you really mean is that you’d really like to pick the low… . Don’t blame you for that. In any asset class that would be ideal. Few can actually do it. We’ve done it with six properties in the last decade…. probably 18 in the last 30 years.

    My eldest is a pretty bright guy, one of the leading mathematical experts in the world. Now I’m no slouch at maths, but you may be completely certain he did _not_ inherit this from me. I taught him to program at four, probably created (too much) interest in investment and money from the same age… and watched him $treak away from us. Both our sons travel the world ceaselessly, contracting and investing with laptops. The eldest speaks at the world’s leading universities on request… and his younger brother has had air flights, accommodation and expenses paid by a US network… and has been followed by camera crews at one stage. I can’t help you with any of that. Frankly, it is pretty much beyond my comprehension!

    What I can state is that our family has been fairly fearless in investment. That has worked well for us in all asset classes but shares. We made pocket money, but I lost a blocksworth in the Tech Wreck a few years back! Had I listened more closely to my kids and wife the damage might have been less. 🙂 Fortunately the same year we made far, far more in realty… and the tax situation evened it all out.

    Have to go and scrape and sweep bedroom and home cinema floors. Carpet people will be here in an hour. This week I’m living in a double garage… pretty spartan, but I have my laptops and satellite dongles, so I’m in touch with family, friends and the markets… . 😉

  • 103 Ned S // Apr 29, 2009 at 12:27 pm

    Interesting to hear your reply to Steven’s questions Biker – Thanks.

    Re CGT on the off chance you haven’t heard: One off Mr Henry’s think tanks on the tax system review thing thinks that dropping the 50% rebate on CGT is a real good idea:

    http://news.smh.com.au/breaking-news-national/think-tank-wants-cgt-concessions-dumped-20090420-acd4.html

    They are getting a bit desperate for ways in which they might be able to fund all the upcoming stimulus maybe?

    Additionally for Steven’s info:

    Lots of ways for switched on motivated young blokes to make serious money apparently – I know of one who I’d say is in his thirties. He’d retired to Oz from the UK and was keeping himself amused doing a day job for wages when I met him in mid 2007.

    But life wasn’t too stressful as he had a software business back in the UK the government was paying about a million a year to (I think it was GBP rather AUD? Couldn’t swear to that as I’m a bit forgetful.)

    The ongoing annual payment was to show their appreciation for his effort in having built a computer system they put into all their primary schools (leastways I think it was primary schools?) to make it easy rather than hard for the teachers to record some data on the kids a bit of goverment legislation had made necessary. The teachers had been a bit stressed when the legislation came out apparently? But his system took a lot of the additionally workload off them.

    He employs a lady (or two?) back home to take care of the admin side of the business and pays his taxes there and says thanks for the bit that is left for him – What would that be? Nice money regardless. Plus he’s getting the pocket change from his day job here – Another AUD 100K pa I’d guess before tax? He was managing to struggle by apparently – Smile!

  • 104 Biker Pete // Apr 29, 2009 at 3:18 pm

    Enjoyed your post, Ned. I’ve encountered a number of young men who have done so well I sometimes wonder if I wasted the first two decades of my life. A Canadian visitor (24) who just left our guest cottage recently sold his first business for a colossal sum, writing into the agreement that the buyer must hire him for five years as a consultant. He now travels RTW first class… his only obligation being to answer his mobile phone… all at a terrific salary… . On government interventions: There’s a whole raft of them possible. Being flexible, we’ll roll with the punches…. 🙂

  • 105 Greg Atkinson // Apr 29, 2009 at 3:53 pm

    The issue I always have regarding government interventions is that people start to expect things like the first home buyers grant will be around forever and government handouts/grants etc. always discriminate in some way because not everyone gets a slice of the pie.

    For example what do people get if they rent and decide never to buy a home because they wish to be mobile and be able to move for work? Nothing, and actually they are in effect penalised for not buying a home, so you have to think, is that really fair? Sure the first home buyers grant gives people a start but maybe we would be better off saying here is $10K when you finish your degree, trade, diploma etc. If you chose to buy a home with it..great..if not put in the bank or travel overseas.

    Or how about we say, if you do xx hours of community work and are a person of good conduct then you can apply for a study grant, or a business grant etc. I am always a bit uneasy when the government rakes in taxes with one hand and then hands this money out again with the other…it starts to feel like social engineering. (and borders on vote buying sometimes)

    I just worry that with all these handouts we are creating a generation that expects that the government will always give them something and actually it starts to become almost sensible not to work too hard, because if you do you will end up paying higher taxes and not get any rebates etc.

    I am in my 40’s and think people around my age have had it pretty easy when compared to our parents, grandparents. Seems to me the better off we become the more we want. Okay, I am going back in my corner now 🙂

  • 106 Ned S // Apr 29, 2009 at 4:21 pm

    Greg – We are into our third generation of “almost” professional handout minded recipients – Mr Whitlam kicked all that off with his (dare I say it???) “Single Mother’s Pension.” Oh, am I going to get booed and hissed for that!!!

    Well meaning Yes! Compassionate Yes! But a multi-generational poverty trap maker if I’ve ever seen one Yes!!! (In hindsight anyway.)

    Very strongly suspect we haven’t had nearly as many self made people arise from that group as the children of the Great Depression era personally. Although I’d always stand to be corrected of course?

  • 107 Ned S // Apr 29, 2009 at 6:28 pm

    Biker – You’d only have to compare yourself to your OWN kids at the same age to ask what you did wrong I’d suspect? Nothing especially I’d guess – We’ll not over and above the norm for then anyway most likely?

    You just didn’t have parents who had quite as much savvy about money as your kids parent’s did maybe??? But even if I’m wrong in that; A lot of this stuff is still generational. With each generation wanting better for its kids and hoping they’ll be smarter and do better than them.

    Leastways that’s how I was taught to think by example if not by word – My Dad’s generation weren’t necessarily great talkers – They seemed to think that a single profound statement every 2 to 5 years was quite adequate. But they did DO a heck of a lot if any kid was prepared to watch and learn.

    I’m not going to be losing any sleep over possible changes to CGT regs either. The only property I hold that has a significant CGT liabilty is way too good an investment to ever willingly sell. Someone will eventually get it as an inheritance.

    If the nasty government brings in death duties before then, than the benefificary/s just might have to take out a loan to cover them. If I can’t also leave them enough cash to cover the tax liability. Or they can sell if they really want – It won’t be my concern anymore and I will have gone to dust feeling I did my bit from my generational wealth based enhancement perspective.

    You got the bit about family being a HUGE part of any person’s true wealth spot on too I reckon Biker. All cultures I know of have recognised that for so long. Yet Australians seemed to be in danger of losing just a bit of that perspective over the last 30 years?

    I’ve even known the occasional reasonably well to do baby boomer who reckoned they’ll spend what they have before they die. Maybe there is the odd angry bitter twisted one who actually will.

    But by and large the ones I’ve known who previously took that line when things were a bit better economically and houses were a bit more affordable seem to be gradually shifting their positions towards how can we possibly help them get a start? That’s healthy – For mine at least.

    Had a pretty well to do Gen X fellah tell me he and his lady had quite consciously decided they were never going to have children because they cost too much and would not add to their quality of life or somesuch though. Didn’t criticise or squabble – He was well educated (a mining engineer or some such?) and his mind was obviously made up. And ultimately each to his own for mine; But still couldn’t help thinking that he might be missing one of the basics somewhere along the way.

    But I’m old fashioned and still reasonably comfortable with it I guess. Although this whole GFC thing has been a very significant learning experience in my life – To date. I’m kind of hoping I don’t get too over-educated from it! Smile.

    Cheers to all!

  • 108 Biker Pete // Apr 29, 2009 at 9:05 pm

    A lot of salient issues raised here! Spending the kids’ inheritance: Not sure I have sufficient time to do so, but I figure they won’t need it anyway. Far more savvy than their old man… . Death duties: It’s probably one of the few government interventions I’d get angry about. Not because I plan to leave an empire in my wake, but rather because I saw firsthand how much pain and suffering it caused families who had to pay crippling taxes when fathers died; just to _keep_ the farm. For many it was a double death blow… lose dad AND the family farm.. worked for generations. Handouts: We’ve never personally had one… not even child endowment (unless you include doctoral scholarships, which I think are _earned_ anyway… .) But I do agree they’re becoming an expectation and have a lot of downside. With FHOGs, it’s entirely illogical for me to support them, since we derive major income from rentals; but I do. And it has little to do with selling houses. (Here my wife and I disagree, BTW. She has no strong view, either way.) I’d like to see the building industry protected. I worked beside two different tradies, today. It’s all too easy to put these guys down as ‘bogans’, but I get to meet very hard-working, skilled Aussies, while I’m ‘in the trenches’… and I’ve learned hundreds of new skills I can apply on our little valley property. I also get to hear a lot of non-academic views about the way we live. These guys never suspect my true situation… to most I’m a grey-bearded, reasonably-fit old guy on a shovel… or a paintbrush… or a broom… or levelling / reticulating/ landscaping / plumbing a block. But a lot of the conversation consists of their _questions_. And those questions really are the same ones we’re asking here.

    True Confessions: As for my fatherly contribution…. it has not all been beneficial. While one son has risen well above the narrow confines of my example, I suspect (from his emails) that his elder brother may be receiving professional counselling for ‘money-obsession’. I’ve always been too ignorant to realise I needed treatment… . 🙁 (Steven, I’m not LOL here… .)

  • 109 Steven // Apr 30, 2009 at 12:28 am

    Your son is one of the leading mathematical experts in the world ok woow…

    Like I was saying I have been reading alot of blogs on the topic,
    And I have to say that you guys are the only ones who are positive [in your view positive] about property market, You will get the odd decending voice here and there but the over all concensis [Im not a good speller i know, so just ignore the spelling errors] is that the market will under go a major correction

    http://www.news.com.au/comments/0,23600,25389903-2,00.html

    Thats a good link to show some more views, one I find interesting is a guy saying the same as me this is what he said:

    “I hope the Liberals will vote against this budget spending measure. I hope Labor loose the next election. Rudd and co need to stop supporting bubbles. I hope banks keep raising LVR to 20% and higher as I am cashed up and will not buy till Sydney property gets 50% correction. I have $195k saved up.”

    So yeah if as it seems from the blogs that the majority of people feel the same as me, then wouldnt it make sence that thats what is going to happen if most people are going to wait for a fall????
    I can’t see prices rising if everyone is hanging around waiting for a fall, can you???

    Even though I am a Labor man myself, I don’t agree with alot of the actions the Prime Minister is making, all he is doing is proping up the market in regards to the first home grant, and saving their asses with letting them waver their loans for a year when they loose their jobs,
    All thats going to happen from this is the fall is going to be even bigger when people can’t pay their loans back

    All he is trying to do is keep house prices overvalued and isnt allowing for the bubble to burst, just delaying the inevatable really…..

    I also read today that some international organisation thinks that house prices here will drop by a 3rd

  • 110 Biker Pete // Apr 30, 2009 at 8:52 am

    As I’ve noted previously, Steven, there are hundreds of thousands of Australians who agree with your view. Let’s term them yes-hopers. Yes, they hope the market will crash. They’re ‘positive’ it will (ie., optimists in your view.) It doesn’t make it so. As Ned pointed out, earlier, ‘hoping’ is not a strategy. I recall he also noted that ‘fairness’, though desirable, is just as faint a premise on which to rely, in a world with millions of examples to the contrary.

    You’ve been completely, provably utterly wrong before, in this forum. At one point, in a quirky moment when I realised that you did not believe my 26 yo son had placed $700K in indexed funds (you missed my comments about his part-ownership of six properties, his large deposits into super and the fact that he lives on the interest on his cash in the bank!) I almost called you on it. If I had taken that less-than-kindly path, I’d have asked you if you wanted to double your $100K, almost instantly, by placing a bet that I’m lying. In other words “Steven, put up or shut up.” I chose not to do so, out of respect for a young man whom I hope has indeed made a great financial start to life. I also believe that any Third Party we asked to hold our bets would more-than-likely note your extreme distress and call it all off.

    My final note to you, in my previous post, was meant to reassure you that money ISN’T everything. If I could go back and undo some of the past, there are countless actions I took I’d take back to broaden my sons’ life goals. While it was initially amusing to see one of them frequently splash $5K on a restaurant meal for a few friends, it’s almost as sad now to see the other whack $700K into the index. Yes, I’m aware _you can’t possibly imagine_ such scenarios with young men your age, but these are both sad facts. Let’s hope for your sake that your hope that the property market will crash actually happens. I’d hate to see you place _two_ really bad bets! 🙂

  • 111 Greg Atkinson // Apr 30, 2009 at 9:04 am

    Steven, I am not a property bull or bear. I am sometimes called an optimist just because I doubt we will see price falls across the nation of say 30%. Some areas may see those sorts of falls and maybe a wait and see approach in these places is a good strategy. But as I have mentioned a few times, real estate is very local in nature and so broad sweeping national statements about property prices falling by a certain amount seem to me to be more designed for the media than anything else.

    I think it is great you read widely, that is a wise thing to do. Reports can by international organisations can also be useful but be wary, they are often comparing apple to oranges and sometimes dismiss cultural issues. (and as has been mentioned above by Ned S and Bike Pete these do come in play)

    It is not easy making a decision to buy a home, I doubt it ever has been.

  • 112 Biker Pete // Apr 30, 2009 at 9:39 am

    BTW, on spelling: If you _are_ going anywhere, you need to work on it, because fair or unfair, there is discrimination against those who spell poorly. I’ve no idea what vocation you hold… nor does it matter… you will be judged a little less for it. Perhaps worse, your failure to consult a dictionary, knowing that spelling is an issue, could be interpreted as mental laziness. A third, but understandable, accumulated misperception might be ‘the guy cannot spell, he is too lazy to even check… and third, he is too much of a wildcard to even care.’ At that point, the likely acceptance of your argument diminishes.

    You also have an issue with confusing words. For example, where you say ‘descending’ you really mean ‘dissenting’. There are many other examples scattered through your posts.

    I mention all this because you’ve called direct attention to it yourself. It’s free advice you may choose to ignore or loudly reject, if you wish. But as the poet Robert Burns noted: “I would the gift the good Lord give us, to see ourselves as others see us.” As an elder in this tribe, I feel no wrong in alerting you to such perceptions, although I’d really have preferred to do so more privately.

    Off to get more mud up to my chin digging soakwells…

  • 113 Ned S // Apr 30, 2009 at 2:44 pm

    Steven – My take on this is that you seem to be getting very well meaning advice from some blokes who acknowledge they don’t have crystal balls, but have given a fair bit of thought to what they feel may happen regarding housing prices in Australia over the next few years maybe. And in the case of Biker Pete at least, is a man who has acheived some quite considerable financial success in his life. They also would all seem to genuinely prefer to see you achieve your goal of home ownership than not achieve it. And they can all articulate quite clearly why they hold the opinions they do. Plus learn from each other in the process of discussing them.

    I compare that to the Blog you reference and can only say that when I looked at it, there were just way too many people in there, whom I could only describe as silly billys firing off silly comments based largely on “What they want and who they want it from and when they want it and why” for my personal tastes – But then I have been described in the past as a chap who tolerates fools poorly.

    Dead honest Steven – I had to make a reasonably quick exit! I coped for 5 minutes – 10 maybe??? But it actually distresses me to be exposed to too much stuff like that all in one hit. One can only assume there may be some very well reasoned and balanced opinions presented there, but my personal tolerance levels for gibberish are way too low to allow me to hang around and look for them. My apologies – I simply wasn’t up to the job of going through the content of that blog in detail.

    I do however note, that the chap on that blog whom you quote in this blog, mentions the word “hope” quite a few times in his comment – That says something to me. You will make up your own mind on what, if anything, it says to you of course.

    I’m the most “Yes, a crashish type thing just COULD happen???” inclined voice on this blog that I can see. But even I’m tempering that view pretty strongly and also questioning just how much it may or may not really help you personally given the specific market you wish to buy into.

    And let’s face it, Sweet Lordy, if a 50% crash (the Sydney figure mentioned by the other blogger you quote), should actually happen in the price of a highly sought after asset class like an entry level property in locations in Sydney (the market you are interested in) where the location is at least acceptable enough to have apparently driven prices to 9 or 10 times average incomes, and considering that Sydney has a more diversfied overall economy than some other regions of Australia that just could be way harder hit by any price declines (a real sharpish and protracted contraction in some minerals exports for example maybe???), then this little country is going to have such big problems, that worrying about whether a house costs $600K or $300K in such locations (just as some real wild figures??? – As I definitely don’t know Sydney house prices or what price range you are looking in or where or for what) – Won’t be real high in most people’s list of things to worry about.

    You also seem to be alluding to some sort of “buyer’s strike” based on anticipation of prices falling, forcing a crash maybe? Yes, that sort of collective thinking could certainly have an effect. And for that precise reason some very powerful influences will be brought to bear against it.

    Maybe you can do some research on what the American government’s recent responses have been in such a situation. And consider for yourself, to what degree they may or may not be being successful. And continue to be (or not.) And also consider the fact that Mr Rudd is very much forewarned of the sorts of economic effects that significant housing price declines can have on a nation’s economy. (While aslo bearing in mind that Australia’s housing market does have significant differences to America’s.) And that Mr Rudd will be watching developments in the American housing price situation. In view to assisting his government formulate any future policy changes it may implement that could impact housing prices in Australia.

    A final comment: I’m a pretty poor listener – By nature, I tend to be way more inclined to want to tell other people my opinion than listen to theirs. It’s a very significant weakness. But at least I’ve recognised it now and that means to some extent I can try to compensate for it. So even I had formed a pretty strong impression that Biker Pete’s eldest son probably had way more assets than just the $700K you mentioned. (But couldn’t be bothered going back to really check in detail as to whether you’d missed something on that score or whether I had – As it was of no great concern to me one way or the other; except as maybe a check on having possibly let myself down a bit in that regard in that particular instance perhaps?)

    But anyone who suffers from the same problem as me in that regard, does themselves a very great service by recognising it. And working hard on compensating for it. I think?

    Sorry about not being able to cope with that other Blog – I’m not a great listener by nature as I said. And if too much of what I’m being forced to listen to is obviously just self interest based gibberish, I have to walk away. It’s just a real basic self sanity protection sort of thing I suspect?

    Cheers!

  • 114 Steven // Apr 30, 2009 at 4:07 pm

    HAHAHA

    I can tell you are starting to get the S***s Pete
    HAHAHA

    No I did not forget you said your son has interest in various properties.

    No I did not NOT BELIEVE you when you said your son has 700K
    What I said was if you acttually read it was “If you don’t mind me asking How is that possible?”
    There is a difference between saying “I don’t believe you and asking how is something possible”

    Do you agree with that or not?????
    And I want you to answer my question
    Ok so don’t come on here and say to me:
    “double your $100K, almost instantly, by placing a bet that I’m lying. ”

    When I never acussed you of lying in the first place

    And by telling me to “Steven, put up or shut up.”

    The other point you can have a go at me on my spelling
    Ok I can Front up to my errors, and say I am not the best speller in the world,
    There are alot of people able to spell alot better than me and are more educated than me, but the thing is not too many of them have 100K in the bank at my age[and when I say that please don’t I am being arrogant or trying to big note myself because that is NOT in my nature].
    All I am is a humble blue collar worker, working har to better my future and doing the right thing for my country

    Another point when you were agreeing with ned when you said “As Ned pointed out, earlier, ‘hoping’ is not a strategy.”

    So when you were buying 12 investment properties,
    What strategy exactly were you using when you purchased them HUH????

    It wouldn’t of happened to have been “HOPE” ?
    Hoping that they were going to boom and at a pace much greater than inflation, just to make the lives of other poor buggers more harder.
    A bit contradicting I would have though????

  • 115 Ned S // Apr 30, 2009 at 5:04 pm

    Biker – I supect I may have erred in relation to at least one of my previous posts to you. Sorry about that.

  • 116 Biker Pete // Apr 30, 2009 at 5:32 pm

    Yes, you would have though.

    (Looks like I touched a raw nerve… not that I’d expected a polite thank you! 😉

    So, in commenting about my son’s $700K in indexed funds, LOL means Lots of Love, does it, Steven?

    Here’s some more free advice, Steven. Stay with the blogs which _agree_ with your viewpoint. It’s much more fun… . and those guys won’t realise that your punctuation, spelling and grammar are deficient. Best of all you can all commiserate about greedy investors, evil landlords, self-funded retirees, paying board, The Good Old Days (when everyone had it better…), 50% property crashes and the like. Nothing like a good whinge… .

    Hope? Our _goal_ was always to be independent, self-funded retirees… able to motorcycle across all the continents and countries of the world, for up to four months at a time. We’ve managed to cross three continents (and a lot of countries) so far… but my wife’s insistence on working until June 2010 has been the only thing preventing us from spending Australia’s winters abroad four months of _every_ year. And yes, our _plans_ (3, 5 and 10 year plans) to be independent free agents, not reliant on pensions or government support, have all been achieved. Most people our age are leaving the accumulative phase. Happily, I believe our AP will outlast us, with multiple income streams providing comfort, excitement and extreme mobility.

    I doubt you can learn anything from me. I won’t be so crass as to suggest it’s a case of “… casting pearls before swine… “; it’s more that you’re very inexperienced, a little impressionable and you already know the answers. Congratulations. At your age I didn’t even know _the questions! You’re certainly not a lost cause. When you finally buy a house, you’re going to be the loudest voice in defending its value. The very thought that you could lose $100K in property already has you paralysed in fear, _before_ you’ve bought it… .

    You get the last shot, Steven. The free coaching is over. LOL.*

    (*Lots of Luck!)

    Biker Pete
    (Back into the soakwells… !)

  • 117 Biker Pete // Apr 30, 2009 at 5:39 pm

    No worries, Ned. I enjoy your comments and I’ve learned a lot from your perceptions, even when we disagree on a few finer points. You’ve raised some key issues I’ve related to my wife, who agrees they broaden our understanding.

  • 118 Greg Atkinson // Apr 30, 2009 at 7:00 pm

    Steven – let me just add a few comments and then I might retire from this exchange 🙂

    Firstly I started my working life as an apprentice so my collar was pretty blue. But being a blue collar worker did not mean I wanted others who were doing better than I to fail, nor did I feel that people who had smartly (and legally) invested their money were ripping me off. It is not greedy to keep ahead of inflation when you invest, it is the whole point of the exercise!

    People like Biker Pete are no out to cause others harm and are not solely responsible for driving up real estate prices. Biker Peter cannot sell for more than the market dictates nor can he hope to rent out his properties at more than what people are willing to pay. You also have to appreciate that he takes on considerable risks when he decides to build a new house. He also puts in time and effort so why shouldn’t he be rewarded for this?

    If property prices go up and he makes great returns then good luck to him. He is not forcing anyone to buy one of his houses, they are free to research the market and buy elsewhere if they want. Conversely if property prices could go down he would be forced to adjust and deal with these conditions. In other words success is not guaranteed.

    Property prices in Sydney peaked I believe in 2004 so this highlights the fact that it is not always plain sailing for property investors. But if we want homes available for people to rent then we need property investors. If we want new homes for people to buy then we need developers and builders etc.

    When I read what Biker Pete and Ned S have written I can see a great deal of wisdom. You may not agree with what they say, but this does not mean what they say is not wise. They are giving you the ability to learn from their experiences and frankly speaking, I am learning quite a bit from them as well.

    Finally my last tip is not to fall into the trap of playing the envy game. If you spend every day being annoyed that someone is better off than you then you will be an unhappy lad, because there will always be someone better off than you. But if you woke up this morning, had a good meal today and have a roof over your head than you are doing a lot better than tens of millions of others..so maybe life is not that bad after all?

  • 119 millie // Apr 30, 2009 at 7:55 pm

    It might be worth reading Michael Yardney’s new book:
    “Thriving not just surviving in changing times”,
    I think it’s excellent.
    It addresses all the above concerns, including the fear of investing (admittedly I am also fearful).
    It’s got a lot of common sense and the bottom line is, property in the long run offers a fantastic hedge against inflation.
    since our current governments are intent on printing money in mega amounts,money devalues more and more quickly.
    You are better off to have a loan (it will also loose value) and invest in good quality property.
    Also, don’t sell, that was by far my biggest investment mistake ever!
    If I had held the properties I brought and traded over the last 10 years, I would now be retired.

  • 120 Ned S // Apr 30, 2009 at 8:26 pm

    Biker – Thanks.

    I don’t think we disagree on anything much at all really? A bit of a difference on calls re probabilites re movements in Oz property markets is all. And yeh, I’ve been learning from you – WAY more than you from me I suspect? Sincere Thanks!

    And we SURE don’t disagree on anything to the extent that the son of a “cocky” (Smile!) and the son of a bloke who started work as a “man” in a brickworks at the age of 12 and went maybe about as close to getting divorced as was ever really likely to back in those days who’d announced to his wife early in his marriage with a young child, that he’d “see his family starve” before he’d ever “scab”, might be expected to disagree in other cultures/circumstances? [You know the term I’m guessing? Old time hardline Labour Union speak for Break a Strike – Tough stuff! But necessary – For them in those days anyway.]

    I’m actually a decade or so younger than you. Although with this GFC thing and given a few of my personal life experiences, I also maybe “feel” about 90 odd on lots of days. (Smile again!)

    Did one of those internet based life expectancy tests when I was maybe 48.5 – It said Yep, we expect you will die at 47. So I’m definitely way ahead of their guess now.

    And thinking better times ahead for sure! Because if nothing else, my whole family history taught me how to survive tough times. Just not how to profit to the max from the good times – But I’ve been turning my mind to that as well.

    Those old days were bad, bad days Biker. With the previous generations having had things even WAY, WAY more worse.

    Kind of nice we live in a country where no such problems have arisen for a very long time. We need to be thinking in terms of how we can keep that status quo I suspect. (Although there are times when I ask myself how can we? Short of a severe dose of financial reality for our youngies. My maybe (then) 17 yo step daughter once announced to me that she “Worked to Live; Rather than Lived to Work.” Fair comment – Got her when she was maybe 9 (or 10?) and had done my best I reckoned. And hey; she just could maybe have been right – I didn’t argue.

    But her announcement was at least a decade ago, during which time we’ve lost touch. If she is still living in the same nice rented flat I have a phone number on, I’ll get an answer. We’ll see I guess?

    Cheers!

  • 121 Ned S // Apr 30, 2009 at 11:02 pm

    Millie – Thanks. Everything you say makes good sense to me. (Sadly – Because I’d like to throttle government for intentionally targeting positive inflation.)

    But given that we know they’ll even go for QE if pushed, cash isn’t looking great even mid term. Fighting government is not a wise investment strategy – Even mid-term. (Although there is some question Oz may very well resist QE I personally doubt they’ll resist just good old basic inflation?)

    But given the bit of a bubble Oz property seems to be in [to me] I’m holding for now – A bit of a wait and see game. Just on the off chance they might let property prices drop a bit/not be able to prevent a bit of the same given upcoming job losses etc? If nothing else it will throw the mob (of which I’m one) a bone – Cheap(er) houses, Yes!!!

    But with powder dry and ready and ready to pull the trigger at any time. Watch the ROI big time I think? It’s not the be all and end all. But changes in same are a useful indicator (for mine.) Stagflation at worst for a a few years we might hope eh? (Or a decade -BIG Ouch – Big liveable – If the ROI holds.) Smile!

  • 122 Biker Pete // Apr 30, 2009 at 11:55 pm

    Yes, previous generations had it tough, Ned. I guess that today balance probably is the key… and undoubtably the reason I’ve enjoyed this forum so much. There has been a nice balance of views… people have shared their opinions and experience(s) very openly and generously.

    My small contribution may have been that post in which I described the formal framing and sequencing of _big questions_ after we realised how little we _really_ knew about taxation, depreciation schedules, super, investment in different asset classes, offset accounts, etc, etc. The day we spent on that exercise was a lot of fun. Getting the correct answers was harder work, but it has been repaid continually, especially in planning and timelining our goals.

    Thanks for the forum, Greg. It has been a delightful distraction from labour on our projects. Much of the time I’m over 100 kms from home… and I’ve lived sporadically in five garages in six months, trying to complete homes to meet the rental demand. It has been full on… and your posts have given me much to ponder as I toil. Millie, thanks for the tip on Yardney’s book. I’ll order it tomorrow. Janet will explain anything mildly complex to me! 🙂

    Finally, much is said of the best investment being in oneself. I’d have to agree; and a great _partnership_ amplifies not only the chance of success, but maintainance of course when heavy weather rolls through. I can’t overstate how important my fellow biker Jan has been in setting, actioning and achieving incremental and major goals on our timelines.

    And sometimes the weather requires a slight change of course, or an unanticipated delay. While our little family team bounces ideas around continually, fresh intelligent outside views can be inspirational. A resource such as this forum provides invaluable insights to review our course and help make those shifts smoothly.

    Best wishes as we all weather the stuff that’s blowing in from the north… !

    Biker Pete,
    WA

  • 123 Steven // May 1, 2009 at 12:08 am

    So Biker Pete you couldn’t answer my question when I asked you

    There is a difference between saying “I don’t believe you and asking how is something possible”

    Do you agree with that or not?????

    Because you know I was right and you were wrong, thats why you didn’t answer it , all you did was dribble trying to divert away from the question in order to try to prevent yourself from looking like a fool

    WELL DONE

  • 124 Ned S // May 1, 2009 at 7:23 am

    Re the Stagflation comment in my last post: “Big liveable” should have read “But liveable” – More attention to detail required before hitting the Submit button I think.

  • 125 Ned S // May 1, 2009 at 10:25 am

    Biker – A few questions please?

    I’m a latecomer to this article and just trawled back through the comments (fairly thoroughly I think?) looking for the one you mention where you “described the formal framing and sequencing of _big questions_ after we realised how little we _really_ knew about taxation, depreciation schedules, super, investment in different asset classes, offset accounts, etc, etc.”

    Maybe it is not under this article? Or maybe I was just looking for something a bit more “formal” than anything I found?

    But if I’ve simply missed it, can you give me a bigger hint as to where (like the Date and time or the post number from the top Right Hand Side) please.

    Otherwise, if it was a comment made under another article and there is any chance of you being able to find it again without too much hassle and point me to it I’d be grateful as I’d really like to have a look at it.

    I ran a few Google searches looking for it but had no joy. Picked up the Daily Reckoning stuff re “Australian House Prices are Severely and Seriously Unaffordable” but couldn’t spot it under your comments there either?

    http://www.dailyreckoning.com.au/australian-house-prices-are-severely-and-seriously-unaffordable/2009/01/27/

    Also what does VSE stand for? (The first thing I got with Google that seemed of vague possible relevance was Virtual Stock Exchange … But then a penny dropped – Victorian Stock Exchange maybe … Not being a stock type bloke [Most of my lot always just said Don’t put your money there – You lose it – Based on the Great Depression experience I guess] – I didn’t even know there was a Victorian Stock Exchange. Although it’s an index now by the sounds of it?) Or am I still well off the mark?

    Thanks and cheers!

  • 126 Greg Atkinson // May 4, 2009 at 7:19 pm

    Housing market suffers worst decline in 23 years as reported in The Australian:

    http://www.theaustralian.news.com.au/story/0,25197,25428014-601,00.html

    It is interesting to note in the article this comment:

    “Real-estate analysts say a relatively small number of very expensive houses are being sold at big losses and this is skewing the national figures, despite strong demand from first home buyers driven mainly by falling interest rates.”

    I also saw a headline in the media today that suggested the annual price drop of 6.7% was a “plunge”…mmm…not exactly what I would call a plunge.

    As I have said a few times, I think a median home price means very little and I am guessing if you strip out the top end of town that home prices in Australia probably remained pretty flat.

  • 127 Steven // May 4, 2009 at 8:34 pm

    Well it looks like the Chickens are coming home to roost BOYS

  • 128 Ned S // May 5, 2009 at 10:55 am

    March 2009 RBA Financial Stability Review is interesting. I found the 4 graphs on page 49 particularly informative re some housing trends over the last 30 odd years.

    It is also interesting to note that the RBA certainly do seem to think in terms of average household disposable income when it comes to housing affordability. (Seems we are back to about average in that regard???)

    The increase in affordabilty has been just about vertical though. That’s worth giving some thought to I’d say.

    The general comments in there are interesting as well. Just from the perspective of how they feel Oz households are holding financially etc.

    Another comment is that I have a personal suspicion that housing prices tend to be a bit more closely tied to what is happening in the real economy than stocks which are more forward looking maybe??? (Although there are few things that can and do mitigate the effect of that in a declining property market.)

    Lots of factors at play.

    But for mine it is a real good time to be keeping a very close eye on any particular Oz property market one is interested in buying into.

  • 129 Ned S // May 5, 2009 at 9:46 pm

    Greg – Yes, a “plunge” – For mine 25% would be one of them? 40% (or more) would be a “crash!”

    I built one for $280K in 1993/94. Agents wanted to sell it the day it was completed for $340K. Didn’t have the heart to do it though – The family had been living a bit roughish (caravan etc) during construction. Six months later it was back down to the $280K original cost mark – A drop of about 17.5%. Hardly catastrophic but more sort of “Chunner, chunner – I knew I should have sold” material.

    But it was a higher risk lifestyle sort of property. (I’ve learned a bit since I hope?) Didn’t have to sell though. So held. Doubled my money 12 years later when I did eventually bail.

    Family had a place to stay rent free for a lot of the time. Plus I did earn some rent on it for while. And for a few years I let it sit vacant. No tenant suited me at the time. But no silly games where I tried to pretend it was available for rent when it wasn’t to pick up a bit of tax advantage.

    Each to their own for mine; But I have a personal preference for not trying to cheat the Tax Office; Bit high risk for one – They can bankrupt a bloke if they decide he really has been a bit naughty and they reckon it’s worth their while having a crack at him.

    An interlude re same: Have spent a bit of time talking to an ATO bloke I know about tax havens recently. He reckons it is interesting to see a bloke who has big money in a tax haven they’ve found and are asking him a few questions about same only to hear him say about halfway through the conversation But surely the offshore bank must have told you about that? To which they respond, But the offshore bank swears it has never heard of you Mr Bloggs? It would appear you have no money there??? But we’d like you to pay your tax on the income we’ve traced irrespective of what you might have done with it please. At which point Mr Bloggs gets that sinking feeling that not only might he have just been so successful in alienated himself from the money he popped in the tax haven that he has no chance of ever seeing any of it ever again, but that he also has a very nasty tax bill to pay in Oz regardless. (Still, I have a warped sense of humour I suspect? Smile!)

    But back to my 1993/94 house build – Really lousy investment. Even a dumby like me should be aiming to double every 10 years given inflation. Half smart people seem to be able to do it in seven??? Then you get the smarties who can do it in 5. Plus after that you drop into the shark pit where almost anything is possible for them what have the nerve for it. (Although I have sneaky suspicion only about 5% of the sharks survive long term?)

    Live and learn eh? (Hopefully – Smile!)

  • 130 Greg Atkinson // May 6, 2009 at 9:47 am

    Ned S – I am not a property guy as such but I would say residential house prices would track the fortunes of the real economy simply because people “feel” changes in the real economy perhaps more than they do the rise and falls of the stock market. But having said that, more people own stocks now (either directly or via their superannuation) so I reckon this also is a factor these days in terms of the property market. (and one reason I watch the property market)

    For example many people were in the past using the excess equity in their homes to invest in the stockmarket so when this equity dries up it in effect, takes money out of stocks.

    Of course there are many people who simply want to live in the home of their choice and this rather large group of people are often ignored. They are not investors and will move heaven and earth to stay in their homes. A 10% fall in home prices is not going to make them pull up stumps and move and in fact many of these home owners are better off now due to low interest rates than they were last year.

    I agree with you regarding the ATO and taxes, best to play things with a straight bat so to speak. Sometimes people are too clever for their own good as the saying goes.

  • 131 Ned S // May 6, 2009 at 6:50 pm

    Greg – Good point – Lower poperty prices suck money out of stocks.

    But lower stock prices (especially given anticipated superannuation payouts being used to ultimately pay off the family home that lots of dollars in equity were drawn out of to raise the kids) suck money out of housing I think.

    Certainly anything that is more than basic entry level type stuff and especially at the higher end/approaching retirement end. Vicious little circle our government has trapped itself in. (And McFarlaine did warn them!)

    But how to solve the poblem? Oz has lots of land. Sell any youngie who has saved $25,000 (or some such?) a 1200 m2 block of dirt in the boondocks with sealed road to the area, electricity available, dirt roads within the area, no sewerage (septic is fine), rain water tanks and the option to live in a shed if they like, or a caravan and/or shed, or a house they build themselves that complies with basic “won’t fall down and kill the occupants” type standards or something nicer built by a builder if they want/can afford/should choose.

    A bit along the line of what the WWI vets got – Hey, here is a patch of dirt – Turn it into a dairy farm. But not nearly as hard – Just hey, here is a patch of dirt – Turn it into something fit to live on. A patch of dirt to make the best of.

    Yep, you have to drive two hours to get to work each morning. (Life’s tough when you are getting a start – Ho Hum – Welcome to reality – But it gets better if you work on it.)

    The Builder’s would manure their pants as would the the Banks and the Real Estate industry. But I think it would balance out just fine given 20 years??? (Either that or we just go for high density European style type dog box living despite the fact we have no shortage of land?)

    Re tax – Shouldn’t laugh – Tax cheats are human beings too I reckon. (But stories like those do tickle my quirkish sense of humour is all. And highlight the risks to any who do incline to naughtiness.)

  • 132 Pete // May 7, 2009 at 3:58 pm

    Steven:
    Don’t worry yourself about what these people say.

    I find Greg is a bit pro real-estate, Ned isn’t silly but doesn’t like conflict and agrees with everyone (even Biker Pete) whilst probably being a closet RE bear and Biker Pete, well, you have him figured out already.

    Just think of the successful RE bulls as ‘professional pokie players’. So, some of them managed to do well in the midst of a bull market in RE. They did well and now consider themselves experts. They don’t actually know the greater economics to the market, but what they think they know is that RE goes in cycles and that people will always have the same demand and capability to buy RE.

    It’s not worth your time arguing here. Try bubblepedia.net.au, its great.

  • 133 Greg Atkinson // May 7, 2009 at 4:22 pm

    Pete, I wrote two articles about property outlining both the bear and bull cases. This is a far more balanced view than bubblepedia. The problem is the doom crowd just want to hear doom…and if anyone else does not think the sky is about to fall in they must be wrong or blind optimists. In fact most of my articles include the pros and cons of the issues I raise.

    I am not “pro-property”…. I just do not feel we are going to see massive price falls by 50% across the nation.

  • 134 Senator13 // May 7, 2009 at 4:38 pm

    I think for Steven, the course is pretty straight forward. He thinks Real Estate will “crash” then he should wait and buy when he thinks the price is better.

    But, it might be wise to have a back up plan if the “crash” is not as large as expected…

  • 135 Steven // May 7, 2009 at 6:08 pm

    HAHA

    Yeah I know Pete

    Yes I think there are a few “YES” men in here with Biker Pete being their Master
    Yeah like I was saying you can go onto any other blog and mostly everyone thinks that prices will go down

    They seem to ignore whats happening in other countries and think it wont happen here

    I don’t know that they understand how bad we have it today
    8/9 times the average income to pay an average house off compared to 3 times for them, You feel like your banging your head up against a wall and not getting anywhere

    But yeah I don’t take any notice of them haha

  • 136 Ned S // May 7, 2009 at 7:55 pm

    Steven – Good luck with it. But just be very sure that you DON’T blame anyone else if YOU are wrong – Leastways not any of the people who have been curteous enough to listen to your opinions and suggest some possible reasons to you to the best of their ability and in an honest manner based on their best understanding of how the world does work as to why you could possibly be a bit off in your judgement re expectations of 40 or 50% drops in entry level housing prices in acceptable locations in Sydney(?)

    But hey, Oz just could still crash and burn in a deflationary Great Depresssion style crash along with the rest of the world. What do I know? Except governments aren’t at all keen on the idea apparently!

    But good luck with it all anyway – And Cheers!

  • 137 Vince L. // May 7, 2009 at 8:23 pm

    Home prices might fall but 50% seems a bit rich. I reckon if you are hanging around waiting for a 50% crash in house prices you could be waiting a long, long time. (I wonder if it has happened ever?)

  • 138 Pete // May 7, 2009 at 8:43 pm

    I wouldn’t put too much faith in Governments Ned.

    Zimbabwe has a Government.

    Some not-so-bad Governments (eg not fascist dictators) in the past have caused hyperinflation. The question is, if you think the Governments will fight to keep housing propped up, what EFFECT will that have on everything else, especially the greater economy?

    Can the Gov. also control unemployment levels, general price of living, or force people to spend money? China can, we can’t.

    Ned I really do think you have a good idea of different issues, but then I see you playing up to Biker and others and it just seems so shallow. Perhaps have an opinion that you can back up and then stick with it?

    And how ‘successful’ someone has been in the past does not have any influence on how successful they will be in the future, nor how wise they are. Be very wary of that. There are plenty of RE bulls who did very very well for themselves, but to praise them for that is like praising a lotto winner. They were just in the right place at the right time.
    I think it is also wise to be wary of anyone who is willing to tell you about how successful they are, or brag about such things. This is actually from the need to convince themselves more than they need to convince you.

    Greg: Yes, you did and do post both sides of the story. Understand that I suspect you are an RE bull from your disagreements with myself and other bears, and your lack of disagreement with the bulls. Perhaps my bias clouds my perspective on that, but i’m still convinced.

    I think in general I can sum up your position on many things actually (not meaning offence):
    – anti gold
    – slightly pro real-estate
    – anti Rudd, but not necessarily pro liberal
    – anti broadband scheme
    – pro sharemarket booms
    – pro long term global economy
    – contrarian, but often to the extent that you seem contrary to contrarians. Which is generally the opposite of the contrarians. Which is actually kind of amusing
    – pro ‘trends’
    – pro cycles
    – pro Japan
    – pro China
    – pro Australia having a good economy

    That’ll do. I’d be interested if you think any of those are the opposite of what I have listed. Perhaps I have misunderstood.

  • 139 Greg Atkinson // May 7, 2009 at 9:17 pm

    Hi Pete, okay let me if I can shine some light on what trends etc. I follow.

    – I am not anti-gold. I owned gold stocks and think gold have been one of the smart plays over say the last 18 months. I am just not a gold guy at $900 USD an ounce.
    – I am not pro real estate or anti real estate. I just do not think prices will “crash”. (although I am bearish on commercial real estate)
    – I am no fan Rudd or the Liberals. (or politicians in general)
    – I am opposed to the government using vast amounts of taxpayers money for the NBN.
    – Pro share market booms? Not sure why you mean but actually I prefer to see a gradual rises in stocks and do not like booms or busts actually.
    – I reckon the global economy over the long term will continue to expand (as it has done for a long time) until we wipe ourselves out or the sun implodes.
    – Generally a contrarian.

    I think the Australian economy is ok but should be better. We are blessed with natural resources but we should be trying to move up the value chain more. I am pro China/Japan and Asia in terms this region being a major economic power house.

    I am not pro trends as such, I just pay attention to them and as far as cycles go it is more of a case of they happen so I roll with the punches so to speak.

  • 140 Steven // May 7, 2009 at 9:57 pm

    Its interesting the point you make Pete

    “if you think the Governments will fight to keep housing propped up, what EFFECT will that have on everything else, especially the greater economy?”

    A bloke at work who has a mortgage for an average house was telling me the other day that he and his wife spend almost all the money they make on the mortgage and he was saying the last time they went out for dinner was 6 months ago because they cant afford to as all the money goes on the mortage

    It made me wonder if everyone [almost everyone] is in the same situation as him, paying a mortage so unaffordaby 9/10 times the average wage [to service the needs of greedy investors like Biker Pete]

    Then how is that good for the economy????
    If people can’t afford to go out for dinner, then how are people working in the hospitality industry supose to survive???
    If they can’t afford to go for a holiday, how will people in that industry survive??
    If he wants to buy a nice car, but can’t afford it, how are people in the car industry meant to survive?
    If he wants to buy some nice clothes but can’t affors to because all the money goes to the mortage,
    How are people in the retail industry going to survive?
    ETC, ETC

    The money he is making IS NOT BEING RE ENTERED back into the economy

    If all he is doing is putting his money into the mortgage then how on earth is that money going to be entered back into the economy to help others survive in other industries???
    Can someone please explain this to me???
    Because it seems like this sort of situation is not a viable option for the economy as you correctly pointed out Pete

    Im not an economic expert ill admit that, but it just got me wondering, can someone help answer this for me?

  • 141 Senator13 // May 7, 2009 at 10:05 pm

    Steven: What do you think all these “greedy capitalists” are going to do when the “crash” does hit? They are going to be buying up twice as much as they are now. There will always be someone out there who is cashed up ready to take advantage of a situation.

    I’m sure when the “crash” comes and you buy into the market at a price you feel is more reasonable – any potential profits you make when you choose to sell are going to be donated to a nice chartable organisation right?

  • 142 Steven // May 7, 2009 at 10:23 pm

    Could answer the question that I asked please Senator13?
    I want to understand how the economy works in regards to the previous post I made

    And NO, potential profits won’t make any difference to me
    because
    A.If I choose to stay where I live its just a number its not going to change anything to me
    B.If i choose to upgrade to another property then its not going to make a differnce beacuse any gain that I made off that property will be absorbed into the next property I buy because the price of the next property would have risen too

    I think its pritty simple to understand, so when I buy my first property it won’t make any difference to me if it goes up

  • 143 Senator13 // May 7, 2009 at 10:51 pm

    Well, im sure it can all be explained with lots of fancy charts and macroeconomic modelling. But I think basically from your scenario above, all the money from the people paying their mortgages will flow into the banks. The banks will use it to hire staff, pay wages, pay other expenses and distribute earnings to shareholders through dividends. All of these groups will be paying tax which helps Kevin throw around his tax bonus payments in an attempt to stimulate the economy.

    Now what I think your getting at is how all of this is actually going to help our economy and will all the different types of industry you mention be able to survive. This is where the whole debate of what is the best way to stimulate an economy comes into play.

    Do you give direct cash hand outs to the people that you mentioned or is it better to invest in large scale infrastructure projects that help keep people employed and create jobs. Do you give tax cuts to business which makes it cheaper for them to do business?

    Currently we are in recession so things are going backwards… Getting them to go forwards again is a very tricky question indeed. I’m sorry that I do not have a direct answer to your question. I actually don’t think many people do. I would be interested to hear other peoples views but.

    In relation to the house buying, since you are not primarily in it for profits and sounds like you will just be using the place as your primary residence and you are pretty sure that prices will come down – I think your best bet is to keep saving and wait and watch and just be ready for when prices are at a level you feel comfortable with.

  • 144 Ned S // May 7, 2009 at 11:10 pm

    Pete – I put very little faith in anyone or anything. Except maybe two close family members and maybe two good friends? But government .. Never!

    Oh, but the one thing I trust (almost) unquestioningly is human nature. (Which differs from person to person – But usually not too extremely.)

    People sometimes say to me Are you a capitalist or a socialist – About the only asnswer I can give is “Both but neither I suspect – Maybe I’m a Biologist?” In that I believe very firmly that 1 million years of evolution does not vanish “overnight” – As in, as a species we competed with other tribal groups but also figured out that cooperation was sometimes better than conflict – At least within tribes. (Think Globalization re same and let one’ mind roan free maybe?)

    Although by nature as a species, conflict is still the preferred option I believe – We are still very primitive at heart and very competetitive! But the risk of vanishing in a nuclear haze makes us all temper such competitive drives in deference to the more basic survival one (even if not our personal survival in particular – Individuals will do quite extraordinary things to look after their own – Very deep seated genetic and/or cultural stuff???)

    As to wishing I’d have an opinion and stick with it; I’ll have to dissappoint because I know I’m not real clever when it comes to money. But didn’t think my opinion has changed greatly since being on this blog – I’m still basically bearish Oz RE? And still basically inclined to be thought that bullion is a bit volatile for my my taste. I think? Chuck a fundamental contradiction re same at me and and I just might say Yep, Hellelujah … I’ve learned another lesson! Which would be nice.

    Damned annoying I’ve gotten this old and still have to say that – Re I’m not real clever when it comes to money. But truth is truth. And in the big scheme of things not necessarilry a huge deal – Just a disappointing setback – I didn’t come from a smart old money background; And being realistic I doubt I’ll ever crack it – Unless I come up with a smart business plan or two – Which I do muse on in my idle moments – Thanks to the GFC mainly – Necessity is the mother of invention as they say?

    Before that life was quite acceptable (for me?); But I’ve had a lot of cause to think since ; But the generation that follows from me just could be financially secure IF they are interested AND I do my bit and tell them what I’ve learned? (And am learning.) So am sure happy to listen to those who’ve done better then me.

    Even though I might not agree eventually – As with Biker – He and I agreed about times having been tougher for our folks – But still came away with him expecting growth (albeit reduced) and me still inclining to the more “bearish” perspective – But prepared to accept I could be wrong – Yet again … Smile!

    I tend to think in terms of generations to climb up out of challenging circumstances. Leastways for them that aren’t Warren Buffet or Bill Gates or an Australian politician (Smile!) Slow but hopefully sure, getting smarter, dodging bubbles and busts however tempting they might be. But it all depends on ones risk levels Yes?

  • 145 Steven // May 7, 2009 at 11:30 pm

    You see I think I just might have worked it out Senator13,

    What MAY happen is that people who have invested in houses in the past like Biker Pete, they get all the money from people who pay 500K for the average house

    Now what might happen is that Biker Pete and his likes, they are the ones who recive the 500K on the houses they own and sell in todays market,

    So they go out and live the high life buying lots of stuff so the money goes into the economy mean while the average Joe who has to pay them that money through their mortgage

    So the average JOE becomes like a PORN or a SLAVE if you like to people like Biker Pete, they are the ones working hard with very little rewards to show for it [like the guy I mentioned above]
    But their money is going straight into the pocket of investor who spend that money

    I would call it Legalised Thieft really AKA Capitalism,
    because people are working very hard, but all that hard work is going straight into the Capitalists/Investors hands and then they can spend the money to keep the economy going,
    Rather than the person who actually WORKED HARD for it

    So a person is working really hard for it only for it only for it to be taking from someone like Biker Pete who really didn’t do anything to diserve that money other than buy the property years ago at 3 times the average wage before the person purchased it at 10 times average income

    So Biker Pete can go and live the high life buying lots of stuff so that money goes into the economy
    Whilst the hard worker has to pay the house off in order to pay for Capitalists lifestyle

    Yeah sure banks would make a killing out of it aswell no doubt about that

    But all the other industries need to survive too, and me thinks they may be getting that money from the Capitalist via the hard worker [who is the one who really diserves it]

    Now I am not saying what I have just said is correct it was just a thought
    I just had a think about it and that would be a logical way it could work out
    But if you think I am wrong please tell me what you think

    And I was just using biker Pete as an example in this aswell

  • 146 Pete // May 7, 2009 at 11:55 pm

    Ned: Nice post, I think I understand your position better now. I appreciate that you are somewhat humble in your opinions.

    I really do think you should give yourself more credit though. You don’t come across as stupid at all.

  • 147 Pete // May 7, 2009 at 11:59 pm

    Senator:

    Do you really think there is loads of cash on the sidelines, waiting for houses to drop in value so that they can be bought up? How much cash are you talking about?

    I am in complete disagreement with you.

    There is cash, but it won’t be used for that. Besides, we’re a nation in love with debt. You try get a home-loan when house prices are being smashed. If the interest rates don’t kill you, the negative equity will.

    And just because Biker Pete says there is cash, doesn’t mean squat. Biker Pete would say anything if he believed it, without checking if it was true or not.

  • 148 Pete // May 8, 2009 at 12:18 am

    Steven:

    Actually the simple answer to all your questions about this housing issue and basically ‘where did all the profits and boom come from’ is… (drumroll):

    – Easy Credit –

    Without a detailed history of the problems, basically due to any number of risk management mistakes (mortgage back securities, low interest rates, low doc loans, low LVRs), lenders started letting the money flow.

    A lot. In fact, a freaking lot.

    So much money that, if you can imagine, entire economies became bloated with money…that wasn’t even theirs. Now the problem with money that isn’t yours is that sometimes the lenders want their money back, before you are ready to give it to them. That is why a lot of companies have trouble refinancing debt, and go down. Centro. ABC Learning. Babcock and Brown. Storm Financial. Rio Tinto (got a big scare). Oz Minerals (suckered me out of some money).

    If you go from a system of 90% LVRs (loan to valuation ratios…basically how much deposit you need. 10% deposit required on 90% LVR), where people need to save for their deposits and go through rigourous credit checks (remember the credit file? the banks stopped checking), it is much harder to even be able to purchase a property than say a ‘zero checks 100% loan’.

    (Low Doc: My best friend bought a townhouse a few years back giving false payslips and fake information. They didn’t bother to check anything. He lives quite poorly and barely pays off the principle, but he has his g/f living with him now so that helps.)

    All this extra ‘credit’ was splashed through economies everywhere. China and others were lending, USA and Aus (and others) were spending. But its not a sustainable thing. At some point the money dries up when creditors realise they probably won’t get paid back.

    We are at this stage now (Australias RE market is lagging behind the rest of the world, but only by a year and a bit). The huge bubble of credit in the economy will slowly deflate.

    So it’s not just Biker Pete, but many like him, young and old who took part in this fake boom that started in 2001. Wages went up, people spent on all sorts of things, demand for better houses went up, people realised they could finally buy houses (whether they could afford them or not) and did. These bulls had it good and think their fortune came from being generally smarter than others. Unfortunately for them their arrogance stops them from adapting and changing to a new economic climate. I’m sure they’ll get lots of sympathy.

    The fake boom is deflating. And all these people want to do is to re-inflate it. But with what? The western Gov’s of the world already used more than their share of money to inflate it. Now that they have even less money, how will it be reinflated? The answer is that they will probably try, but they will fall VERY short. And the consequences of their foolish stimulus and bailouts will be felt through distortions in the economy and in the debt future generations will inherit.

    Fear drives the real estate market a LOT. People get scared in a boom and think “oh no, i’m going to miss out and have to pay more for a house later”.
    That sentiment is already changing as the trend starts going the other way. The fear instead will be a “hell no i’m not buying a house this year with falling house prices, i’ll wait til next year when prices are lower”. And they will get lower. And then that person will wait another year saying the same thing until we reach some sort of plateau (there might be little bumps on the way). And of course interest rates will jump up too (they’re starting already).

    And there you have it. An “i told you so” from me (and others) of the past to the Biker Pete’s of the future.

  • 149 Pete // May 8, 2009 at 12:33 am

    Steven: (Re: Capitalism)

    Please don’t have a go at capitalism. Capitalism isn’t the problem at all. In fact capitalism ensures that capital goes to the places where it will be used best.

    Regulations were really the problem. Letting banks go nuts lending all over the place bred a whole swarm of RE speculators who bought for capital gains (not necessarily rental income).

    Owners of RE that invest for rental income are fine. That is capitalism, putting capital to work. Its just that things got completely out of whack when everyone got into the loans, equity and negative gearing game on the back of cheap easy credit.

    Without capitalism, we would probably have something more like socialism. Trust me, if you want to live well in your own house and have things that are affordable – you don’t want socialism. It seems nice at first for the naive who don’t understand that socialism carries enormous costs. Real capitalism generally rewards hard workers, but not so much speculators and risk takers.

    Although, that said, we don’t really have a proper capitalist system in this world…they’re all distored versions of it

    Sorry, I have talked too much. Ciao

  • 150 Steven // May 8, 2009 at 1:05 am

    Yeah when I said I hate Capitalism I meant it in the context of an investor profiting off house prices at 10 times the average income as opose to 3 times when they got the house, and them taking the money and doing nothing for it at the expense of the poor bugger having to pay such a large dept off and living on Baked Beans on toast for 30 years whilst the investor lives it up off.

    I quess in a way its sort of socialism really haha, they are getting something for doing nothing and getting it off other peoples hard work.So I may have contadicted myself there

    And I made that exact point you just made on here not long ago

    Before people thought ohh I better buy now before I miss out and now its going the other way,
    People are getting scarred the other way around [myself included] thinking I am not going to buy now the prices are fall, if I wait they will fall more.

    I quess the mentality of the way people think satrts to change, its fear I quess but the pendulim is starting to swing back the other way

  • 151 Steven // May 8, 2009 at 1:32 am

    Just out of curiosity guys a hypothetical question for you all and I know its not going to happen

    Lets just pretend the government came out tommorow and said
    OK
    From now on we are not going to allow anybody to borrow any money to buy a house you have to pay for the house outright

    How much do you think the average house would sell for???

  • 152 Greg Atkinson // May 8, 2009 at 7:45 am

    Steven, a while back you were boasting about how you had a $100K in the bank. So I am guessing sometimes you like capitalism (when you win) but hate it when you can’t get what you want?

    All I can say is invest or do what you wish with your money. Buy a house or wait and buy later, or rent even it is your choice. But do not be envious of people who have worked hard to get ahead. If they did this by using their own hands good on them, if some people think they are intellectual giants and can generate income via tapping into their brainwaves then good on them as well.

    Oh as for your hypothetical question…of course prices would come down but what is your point? The government is not going to do that are they? What they are probably going to do in the budget is give tax cuts…and this is hardly likely to push down house prices for most people.

  • 153 Pete // May 8, 2009 at 10:40 am

    Steven: I’m with Greg on your hypothetical question. It is a bit of a no-brainer, because people could not borrow at all. I’m sure they’d find other ways though. House prices would drop hugely.

    Consider alternatively if Gov’s forced banks to fix their interest rates at low levels, and also force relaxed lending requirements. House prices would probably continue to go up.

    Both scenarios are very unrealistic. Even a Communist Gov. is unlikely to implement your scenario, although I can see the potential for them to implement my scenario in extreme circumstances.

    Ultimately the point about the Gov. is that it is the great ‘unknown’ factor. I believe people like Biker Pete actually have a lot of faith in the Gov. to ensure higher prices. I am personally the opposite for these reasons:

    1) Gov. does not have enough money to artificially support the RE market sufficiently. That is, without extreme borrowing ($300 billion is nothing compared to what they would need) or…money printing. And guess where either of those leave us?

    2) Opposition will have very strong cases against the Gov and will likely get into power if the Gov tries this. People aren’t all stupid and there is growing negative sentiment towards our RE bubble.

    3) All of the money that is spent trying to prop up the RE bubble is NOT being spent elsewhere. That might seem like a redundant statement, but the point there is that without letting the free market sort out the supply and demand, we actually get distortions in the economy. So, a FHB buys a house tomorrow. That FHB will now have even less money to spend in the greater economy.

    4) Gov’s are really bad at this stuff. They hardly know what they are doing, and history always tells the same story – they mess things up severely. Gideon Gono (Zimbabwe reserve bank governor) started inflating ‘slightly’ to reduce debts. Look where that got them. And of course there is Japans lost decades.
    Consider how clever Gov’s really are, if they let these things get so bad in the first place? Australia and the US (and others) did not try to regulate or consider the sustainability of the credit boom…all they did was ride the financial wave and enjoy its proceeds. That old Einstein quote I find so appropriate here “don’t expect those who caused a problem to be able to fix it” (probably a slight misquote).

  • 154 Ned S // May 8, 2009 at 11:37 am

    Vince L. – I recall having read that Sydney beach front property took a pretty savage downturn at some point in WWII when there was a fair bit of concern the Japanese very well may visit in large numbers. (The figure of 40% even comes to mind for some reason or other although I surely wouldn’t swear to it !!!)

    The bit about beach front (harbour side maybe ?) stuck because it seemed a bit strange to me at the time I read it I suppose. Hey, if that was the worry, then why not all of Sydney?

    Never thought about it again really until now but I suppose it could make sense if one was thinking in terms of our defences are on the coast and that area is going to get pretty badly churned up during any pre-landing naval bombardment plus just maybe is where we’ll greet them when they do land and fight them hand to hand, building to building so to speak until we do push them back into the sea. (One would maybe guess the concept of actually losing that sort of battle was just too nasty to be being seriously entertained???)

    That’s all PURELY speculative of course. Any WWII historians out there?

    A bit of common sense says the Japanese just might not have obliged though – Like as in when they wanted Singapore they apparently found a better way to do it than sailing troop ships directly into the sights of a bunch of big guns. (I’m not sure of the details though?)

    But if you were around in those days and had Churchill’s “we shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender” speech rattling around in your brain, Sydney beach front/harbour side property might have been sounding like it was definitely at the higher risk end of the market?

    Melbourne had the speculative land boom of the 1880s based on the wealth derived from gold and wool apparently.

    http://en.wikipedia.org/wiki/History_of_Melbourne

    T quote from same: “In 1891 the inevitable happened: a spectacular crash brought the boom to an abrupt end. Banks and other businesses failed in large numbers, thousands of shareholders lost their money, tens of thousands of workers were put out of work. Although there are no reliable statistics, there was probably 20 percent unemployment in Melbourne throughout the 1890s.”

    As to what happened to Oz property prices in the Great Depression – No data I can see easily? (There may be some figures but at the moment it is all buried under general chatty type stuff comparing today’s GFC with the Great Depression when one tries to Google it.) But one would just have to assume they dropped a lot I suppose??? Just maybe not quite as bad as stocks though – Given my general impression of family advice dating back from that time has pretty much always been Don’t put your money in stocks – You lose it – Land and a house is way better! Question is, Was property in a bubble then like stocks? Most likely. It was the Roaring 20’s – Everything was booming you’d think? But I guess the argument would be that while it is quite possible to lose all your money in stocks, even if house prices crash, you at least still have something.

    This is a capital “S” socialist take on the current goverment efforts to keep everything from crashing and burning by the looks??? :-

    http://www.wsws.org/articles/2009/apr2009/bank-a17.shtml

    Although I’m not too sure why socialists would be ranting and raving about it unless they are worried it might prove successful enough that there won’t be the bank failures and widespread job losses and poverty and civil unrest that they think just might help get them a bit of a say in government maybe? Oh, and a bit of recognition that, Yes, whenever the government does such things, it is ultimately the people who pay for it through their taxes. True. And lower taxes always appeal – But about the only way I can figure that socialism is going to mean low taxes will be if it results in very few of us actually earning enough money to pay taxes on. Simply put, it’s been tried before and doesn’t work long term. Although if you were a member of the Russian working class in 1917, I’d say it probably was a step up.

  • 155 Steven // May 8, 2009 at 12:03 pm

    Far out don’t be so sensative like I said its just a hypothetical question

    Greg No I wasn’t boasting about the money I have I was just saying that how much I have I am not arrogant I am a humble person, and I don’t think I am any better than anyone else for it.

    Like I said in the previous post I got it wrong its not really CAPITALISM I hate, Its SOCIALISM
    Because if an investor recieves all the profit at selling a house at 10times income when they only payed 3 times income
    Wouldn’t that be SOCIALISM
    Because its taking away money from someone without the investor actually doing anything to work for that money they are getting whilst someone else has to work hard to pay the investor money to live their lifestlye whilst the person who actually worked for that money has to live on Baked Beans for 30 years to service the Socialists needs

    So by definiton would that be Socialism?
    People getting money off others without actually doing anything to achieve it?

    So Greg don’t come on here and demand of me not to be envious of people who have worked hard to get ahead

    Because that is one thing I DO NOT ENVY people who work hard to TRY to get ahead

    What I DO envy is people who want to take that fruits of other peoples hard working Labour who have done nothing to achieve it, In a way I see it as a form as Legalised theift or another word for it SOCIALISM

  • 156 Greg Atkinson // May 8, 2009 at 12:59 pm

    Steven, if you read back your posts you must have derided Biker Pete more than half a dozens times. Why? Just because he is making a living from property? Have you thought about how long he was been out there working? Or what hours he puts in?

    The housing market is tough, it has been since I ventured into it back in the early 1990’s. No doubt the people who owned my first home before I did paid a lot less for it…such is life. If I wanted I could have walked away and headed out to a new land release, worked with a home builder and built my own home. Or I could have grabbed a beaten down place and renovated it.

    The fact is you do not have to buy a home from a property developer, Biker Pete or anyone else you think is trying to take your money unfairly. If you believe the market is about the crash and most of us are ignorant then just sit back and wait for the fall. It really is your choice.

  • 157 Senator13 // May 8, 2009 at 3:55 pm

    Pete: I do not think that there is a load of cash on the sidelines waiting for house prices to drop in value so they can be bought up because I do not believe that we are going to see such a massive negative 50% type crash. I was merely responding to the scenario that Steven was putting. I just meant that if prices did “crash” there is always going to be somebody who will profit from it. Personally, I would like to see prices come down because I would benefit from it and be able to buy in at a better price then current levels.

  • 158 Ned S // May 9, 2009 at 8:18 am

    Senator13 and Pete – Re following from Pete:

    “There is cash, but it won’t be used for that. Besides, we’re a nation in love with debt. You try get a home-loan when house prices are being smashed. If the interest rates don’t kill you, the negative equity will.

    And just because Biker Pete says there is cash, doesn’t mean squat. Biker Pete would say anything if he believed it, without checking if it was true or not.”

    It seems Pete and Biker both feel there is cash on the sidelines.

    As near as I can figure out, as of of late February the Americans thought they had about 9.5 trillion parked up maybe? That’s a fair bit – Certainly more than the value of their entire equities market then I take it? But either way, if they’ve got some pretty heavy duty cash parked up, I guess Australia probably has a bit too.

    The question is, what will it be used for?

    Well, if you were an Australian thinking about what to do with your bit of that parked cash, and had just seen your latest stock market bubble crash but your latest housing market bubble basically still holding (but with a few indications it just may have topped and even be turning down), I guess the obvious thing to do would be buy the stocks because they are low and avoid the houses because they are high?

    But I won’t be doing that personally. For a few reasons. But a fairly important one in my case being that I have neither the skills nor the appetite for risk that are required to profit from the stock market. (Not yet anyway.) And while lots of professionals I could give my bit of Australia’s parked cash to, do have the appetite for risk, it would seem pretty obvious they are a bit short on re the skills side of things.

    So no, it’ll be property for me – When I see a property I like that has an ROI I like or enough long term growth potential (in my opinion) to potentially compensate for a lower ROI.

    But as I’ve said before – Each to their own for mine.

  • 159 Senator13 // May 9, 2009 at 2:38 pm

    Well said Ned… And as I have said a few times before, there will always be that property out there. It might be a matter of waiting (sometimes years) and looking at hundreds but there will always be one out there and there is always going to be someone around to take advantage of it.

    I’m sure there are investors around today that are making healthy returns via rental yield and also making capital gains. Just because prices come down, does not mean that people are still not making a profit on it. I just think that it is unwise to write off an entire market. Yes it will fall, yes it is probably not the best time to buy at the moment for the majority of buyers, but there will always be opportunities out there. Applies to RE, stocks, small business and any other investment out there.

    Babcock and Brown may be a garbage stock, but many people would have made a lot of money off it. Many people lost yes, but if people played their cards right it could have been a damn good earner for them. All depends on your game plan and the individual and the timing. Everybody can have different strategies for different investments. That is why you can have people that won with something like B&B and others that really got smashed.

    That is why im not a fan of big sweeping statements.

    Each to their own indeed…

  • 160 Ned S // May 9, 2009 at 4:53 pm

    Greg – Re “The housing market is tough” – Yes it is. But there just can be more than one way to skin a cat as the saying goes perhaps?
    Let’s take another hypothetical to keep the discussion bouncing along maybe? :-
    Just say a chap buys a home in early 2008 and moves in – Reasonable location – A school, local shops, train station all within five minutes walk – With the run by train into the CBD being maybe 25 minutes. Lots of industrial sheds (jobs) within a 10 minute drive. And a couple of smallish major shopping centre being 7 minutes drive away with a largish major shopping centre being maybe 12 minutes drive away.
    Plus a reasonable size block of land – About 800 M2? House itself is a bit of a “renovator’s delight” – Built in the 1950’s, made of timber on stumps, not all that big, but the layout is such that he suspects that for maybe $20K or less and a bit of labour by himself it could certainly be converted into a pretty basic three bedroom house + one bedroom granny flat with its own lounge and largish eat in kitchen plus bath and WC – All perfectly allowable under local city planning regulations. And while strictly speaking the land it is not zoned for unit development, plenty of units are popping up very close by – Certainly anywhere within maybe three minutes walk from rail seems to be really fair game?
    Bought in early 2008 – That’s a bit of a downer – The price paid was pretty “peakish” – As a bottom end entry level type property the price hasn’t especially gone up or down since then. But the chap knew there was more risk than usual when he bought and said, OK, I fully expect to cop a 10% whack on this – But there are enough attractive things about it that I don’t really care. It should be just fine long term. (And in the interim it is at least basic family type “shelter” material regardless – Definitely MOST unflash – But still a way lot better than a basic caravan!)
    Being a chap who wasn’t all that successful (but then not all that unsuccessful either), but still basically preferred winning in the game of life to losing, and also ascribed to the thought that there just could be a bit to be said for people working together ……… After getting a bit of a chance to know the owners of the neighbouring properties, the chap had a quiet chat to two of them and suggested that it was just possible they could be in an area that had some potential to be rezoned for units. And that if any of them were considering selling at some time, it might be a good idea to consider selling as a “block” so to speak – To a developer. As in, all up, they could rake together over 2,000 square meters of dirt. Certainly enough to make a developer interested. And developers do seem to have a bit of “pull” when it comes to rezoning that the average person maybe doesn’t?
    Both neighbours (hypothetically) said Yes, I can see a bit of sense in that.
    Of course, there was one other neighbour who the chap didn’t mention such thoughts to – As that neighbour very genuinely seemed a bit busy at the time collecting names on petitions as to why units in the area were not at all good and should be minimized/constrained/restricted etc – But the hypothetical chap still figures that neighbour is a pretty good bloke and definitely entitled to his opinion and they share a lot of basic interests and cooperate together in all sorts of other really basic ways regardless.
    Then the GFC came along.
    And less than a week ago one of the original two neighbours the chap had a quiet previous hypothetical chat to, popped in to see him and said Hey, I’m thinking of buying a business. But credit is a bit tight. I’ll have to sell that house next door to yours to raise some cash – Or the banks will laugh at me – Might you be interested in buying? (Free of any RE agent sales fees which we can share as a bit of a bonus between us.)
    To which the hypothetical chap said: Sure; But not at these prices – Heck, the tail end of the FHOG feeding frenzy is on – Sell now I reckon – But not to me of course.
    With his answer being: Nah, I’ve got to wait until after 30 June for tax reasons. And I want time to have a real good look at this business anyway.
    I’ve already got a few ideas on what my answer might be if I was that hypothetical “chap” – But if anyone wants to contribute, I’d be interested to hear?

    Cheers to all (either which way)!

  • 161 Greg Atkinson // May 9, 2009 at 8:26 pm

    Ned S – there are indeed many ways to invest in property and in some cases people really do not care if the place they purchased takes a 10% price hit. In the debate about prices it is often overlooked that many people just want a home in a location they want.

    I am not sure if property is a great long term investment or not because I am simply not that plugged into the property market. But having said that, I suspect there will always be opportunities for people to make money from property if they do their research, work hard and are motivated. Of course there are also plenty of ways to lose money in property…but isn’t that the case with all asset classes anyway?

    As for your hypothetical situation, I would be tempted to keep the lines of negotiation open…sometimes those sorts of opportunities are the best ones to grab with both hands.

  • 162 Pete // May 9, 2009 at 9:29 pm

    Ned S: Re: post 154 (a few back)

    Nice post. Some interesting stories in there, cheers.

    I think that in wartime, beach-front real estate is the least of everyone’s problems 🙂 . I think the value of many things comes into question and the most ‘productive’ investments (ie ones that produce something that people NEED) are the ones that will do best.

    As to advice about stocks: Stocks are just companies. If you invest in a poor company, at an inappropriate price, or often an inappropriate sector then yes you will probably lose money. Conversely, if you invest in a company that does well, then you will do well.
    It all depends on your approach to investing, how much company research you do, and how well you understand each sector (and it’s issues).
    That said, I personally do NOT advocate investing in the current market to a new investor. Volatility is not your friend and will punish mistakes very harshly.

    Ned S RE: post 158

    I do think there is cash on the sidelines, as there always is. Who has that cash? Certainly not your average investor. Most ‘investors’ see the current interest rates and prefer to put their money elsewhere.

    Although, liquid as the stock market it, it is ‘possible’ to see large amounts of cash taken from it and put into Real Estate. Probable? I don’t think so. Investors don’t like bear markets in anything.

    To make an assumption that this cash would be used to buy in to markets (especially individual real estate) is a very big call. If you were a billionaire, would you buy a few properties? Or would you focus on other things like commercial real estate? (the bigger fish). I think they would probably try and buy out companies, etc. Notice how not many Australian investors have come to the aid of our ailing companies (some have in the form of share distribution schemes). People who currently have a lot of cash…are not likely to be stupid with it. They would expect very large returns from it.

    As for mum and dad investors: I really don’t think they have the cash to do anything. If any of them do, they’d be the minority, not enough to see a floor on prices or another boom. Remember, credit drove our current boom. Without it we are set to go backwards to the point where credit is not so important. That just so happens to be a long way.

    In response to Ned and Senator: You are both right that there will be buyers of property. Of course for every sales transaction, there needs to be a buyer. But less buyers than sellers means a lower market. As the market drops, you will have even less buyers as they start to see the trend of the fall and postpone their purchase. This self-fulfilling prophecy of falling prices and buyers waiting on the sidelines drives the market down further and further.

    Factors to consider:
    – some people NEED to sell
    – most people do not NEED to buy
    – unemployment
    – rising interest rates
    – lower availability of credit

    Unemployment levels alone could bring down the real estate market, but instead we have a huge melting pot of perfect conditions just brewing for a real estate market collapse. And I really don’t see how the Gov. can tackle them all.

    I believe the market will plateau at a point whereby most people are able buy again. The problem is that with the things I mentioned above (especially availability of credit), this may be a lot lower than our current levels. I don’t suggest a percentage drop at all. I think there is potential for anything between 20% and 70% drops. To suggest that one is more likely than another is just too tricky at the moment because we don’t know what an environment starved of credit will be like. We had high interest rates a few decades ago, but I am not sure what kind of unemployment levels, household debt and Gov. debt levels we had back then. I doubt they were comparable.

    Ned RE: Your last post, with the hypothetical.

    Which developer is going to have money to buy this? Developers are going broke currently. That is the big assumption.

    In fact, if some developer had the cash, they could probably buy up some nice ‘half developed’ places that have been abandoned due to credit issues.

    The guy who bought in the first place sounds like a flipper to me. Which is fine, but flippers will get hurt buy falling house prices the most, because they rely on capital gains the most.

  • 163 Ned S // May 11, 2009 at 8:18 am

    Greg – Agreed, 10% falls won’t make any great difference to a lot of people.

    I’d even go so far as to say there are quite a few who wouldn’t worry too much about a 50% drop? An aged pensioner couple perhaps who have their house paid off and have the life skills to live happily within their albeit limitted means?

    So long as it isn’t associated with other more widespread and/or lingering economic problems that mean the purchasing power of their just adequate but regular and reliable government payout gets cut? Or maybe if they are thinking a bit longer term and asking themselves if ever they should have to sell up and move into old age care, will they get enough money on the house to pay for something half decent. Lots of different perspectives from lots of different people.

    But at 50% drops a lot of people will be getting hurt. At those sorts of levels the damage is into the real economy pretty obviously.

    And Western governments have certainly made their stance clear on that. They will fight it. That sort of scenario is part of why world governments are stimulating so busily right now. They’ve even told us why – It just smells a bit much like Great Depression II for their tastes.

    As to whether “property is a great long term investment” – In theory at least, its supposed to be a reasonable long term investment. With the words “long term” being fairly important – As in time frames of 10 years minimum with 20 and 30 years and longer typically considered as “good” is my take? And “reasonable” basically means that it keeps up with inflation plus you get a bit of rent off it.

    Of course that Tokyo residential property crash that ripped something like 90% out of the market over about 15 years could well be cited in evidence against a statement like mine above that property is a reasonable long term investment. But they had reached the point of taking out three generational loans over 90 to 100 years to pay for them I believe – So things had presumably gotten pretty strange. (More than happy to hear whatever you can tell me about it?)

    The recent effort in Shanghai where they got up to the point where new apartments cost about 50 times the average annual income before deciding they had a bubble sounds quite impressive as well.

    Compared to those sorts of episodes a lot of the other property bubbles around the world seem pretty tame maybe? But the problem just seems to be that they are so widespread and they are all so heavily debt based with the subprime thing having spread the joy widely at even greater levels of leverage.

    I do appreciate your feedback on the hypothetical.

  • 164 Ned S // May 11, 2009 at 9:15 am

    Pete – From your comments on stocks, they sound a lot like property to me from an investor’s perspective – Thanks.

    Re your question “If you were a billionaire, would you buy a few properties?”:- I guess to be a billionaire nowadays, one would have been pretty successful in trading one or more asset classes over the years (as in cashing in on the booms and bailing out before the busts.) And one would be continuing business as usual – Whatever that might be. But no in all fairness, I can’t see too many of them cashing up big on Oz houses right now. Not that they ever did I guess. That’s maybe more your multi-millionare type level? If I one of those maybe I’d be thinking in terms of a big farm sounds like it could be worth a look or maybe thinking in terms of some of these smaller businesses are going to go under one day, not because they don’t have any real long term potential, but more because they got themselves in just too much debt, and be keeping an an eye on the businesses for sales adverts?

    Re your comments on the Oz property market, your points are all well taken. I’m a bit bearish on the market generally too.

    Re the hypothetical: Yes, given that no developer is likely to be rushing to buy right now – The hypothetical chap did have his chat with the neighbours before the GFC and a lot has changed since of course – He very well may need to have a 15 to 20 year buy and hold mindset. (Feedback appreciated!)

  • 165 Ned S // May 15, 2009 at 10:49 am

    This is cute – We might be able to get in on the residential property market action soon without buying one – For some pocket change I guess? – Courtesy of the ASX:

    http://www.businessspectator.com.au/bs.nsf/Article/ASX-to-launch-house-price-risk-market-pd20090515-S2V69?OpenDocument

    Gee … It was only a few months back I was thinking to myself how nice it might be to be able to go short residential housing.

    We’ve become a mob of short term speculators. Whatever happened to buying an asset you saw value in considering such things as its ROI, development potential etc?

    When Russia crashed and burned, I gather people decided that doing productive things for a living had knobs on it – Way better to be a speculator.

    Plus bribes and corruption were/are good too. I know almost no Russian – But one word I do know is Vzyartka – As in “bribe” – Related to the verb Vzyart (for “take”) I suspect? (Their alphabet is different so the words look way different when written in their lingo.) But regardless, the trick is to learn to think of it as just being like a tip you’d pay in America or Canada – That makes it considerably more palatable.

    And being a crim is real big time! Woohoo … Oz is REALLY moving up!

  • 166 Greg Atkinson // May 15, 2009 at 11:58 am

    Ned S – yes I was interested to see that about being able to “short” the property market via the ASX. I wonder how exactly this is going to benefit anyone but the ASX’s bottom line? Do we really need to be creating another layer of complexity in the property market?

  • 167 Ned S // May 15, 2009 at 2:08 pm

    Greg – From my previous comments I’m obviously struggling a lot with the concept. I’m sure there’ll be lots of winners: The tax office, the ASX, the successful investors themselves.

    Not so sure about the banks – Or tenants. It gives a property investor a few interesting new options though.

    I’ll have to think about it some more – It obviously points out the fact that a lot of the world sees an investment in a somewhat different light to me. I’m open to learning though – I’d like to figure it out.

  • 168 Pete // May 15, 2009 at 4:28 pm

    The RE stocks are interesting…but a bit too risky for me.

    Although I am terribly bearish on the Australian RE market, the actual predictability of RE falls are somewhat clouded by interference from Gov, State Gov, Institutions and other things.

    And as someone else mentioned to me, the price index is from Rismark/RP-Data. There is a big potential for conflict of interest.

    Not that i’d trust that data either. Or indexes. The hard information we have on RE markets is pretty awful.

  • 169 Greg Atkinson // May 15, 2009 at 8:59 pm

    Ned S,

    I am not a big fan of the ASX rolling out new products all the time when they have plenty to do to fine tune what they already offer. I also have a real problem with the ASX being basically self regulated. I would like to see a little more independent supervision and oversight by ASIC.

    Pete,

    I must say now that the first home buyers grant has been extended that I am getting a little nervous about the property market. I wonder how many new home buyers are factoring in higher interest rates and inflation into their repayment schedule? Even if they lock in a fixed rate, inflation could dig into their household budget not to mention some future tax hikes.

  • 170 Senator13 // May 15, 2009 at 9:41 pm

    Agreed, rolling out new products in a time like this alarming. They should focus on maintaining the integrity of the ones they already have and make sure that they remain secure. Rolling out new products could lead down to a very dangerous path indeed – for everyone involved. I hope that the regulators are on the ball for this one. I just feel that it is not the right time for these things.

    Extending of the First Home Owners Boost was a pretty easy thing to predict. By not extending it – people would have been upset – and we all know that Rudd can’t stand anybody not liking him. The less popular but smarter decision would have been to discontinue the scheme.

  • 171 Ned S // May 16, 2009 at 1:55 am

    Greg – I think I’m starting to get my head around it a bit. If my take on things is correct, it is possible to trade an index like the ASX200 or whatever, rather than buy and sell shares in individual companies??? (Correct me if I’m wrong please!)

    But if so, this is just another index to be traded.

    I’ve got no issues with it as such. I guess I just question the value/point? As in I can see value in giving BHP some cash and saying go forth and use that money to produce stuff and make the world a better place. And if I’m wrong and BHP is a pack of losers then they go broke and I lose my money.

    But I’m not so sure I can see what value is added by shorting – As in if you like it buy – If you don’t like it sell – And if you have an opinion to offer either which way, then sell that wisdom to subscribers. (Although from a quite personal perspective, I can see the value from the point of view of someone who is long physical housing, being able to short an index – Maybe, I think?)

    I guess my most basic issue boils down to the following for now: If money is tied up in trading an index, it would seem to me that it isn’t
    being used for any practical purpose – Either to help BHP dig more iron ore or to to help build more physical houses for people to live in. (Should there be a need.)

    Although I suspect/hope(?) I’ll have some more questions to ask re same later.

    Cheers and thanks!

  • 172 Greg Atkinson // May 16, 2009 at 9:15 am

    Ned S – it is not just another “simple” Index. According to the explanation from the link you posted (thanks) it is a ” residential property “derivatives” market based on the RP Data-Rismark Hedonic Indices. ”

    As soon as I see the word “derivatives” I know we are getting into complicated financial products and I would have thought that recent events would have taught us to be a little more cautious when dealing these sorts of advanced financial products.

    Buying into say an ETF that tracks a stocks Index is pretty easy to understand but buying into the proposed ASX listed “property investment contracts” appears to be a lot more complicated.

    I wonder if that is what we really need at the moment?

    P.S. I wrote a little about short selling last year. You can find the blog here: http://www.shareswatch.com.au/blog/stockmarket/short-selling-stocks-the-case-for-and-against/

  • 173 Ned S // May 16, 2009 at 1:26 pm

    Greg – Thanks – I picked up on bit about “shorting” the housing market. But missed the bit about “derivatives.”

    I’m not sure why derivatives so often/always(?) seem to require the use of leverage – But its enough for now to simply know they do – And that this upcoming ASX initiative will presumably just be a bit more of the same.

    I can see why you use the word “cautious” and Pete says “risky” and Senator says “dangerous.” A bit more of How to send the world broke in 90 days and spend the next decade or three paying it off maybe.

    Thanks to all.

  • 174 Steven // May 16, 2009 at 2:47 pm

    There is NO WAY I would put my money in shares for the housing market
    at the moment

  • 175 Steven // May 16, 2009 at 3:13 pm

    I put this link here, it shows some very good information in regards to housing affordability with housing markets in all the western English speaking nations AUS, GBR, USA, NZL, CAN and IRL

    It shows how out of all those markets the most unaffordable is Sunshine Coast, QLD with the average house costing a massive 9.6 times the average wage,
    the least expensive market is Youngstown, USA with the average house prices costing 1.8 times the average income

    Sydney, NSW is the 5th most unaffordable market

    But I find it interesting that Bundaburg, QLD is the 10the most unaffordable market, more unafordable than cities like London and New York

    You must have rocks in your head to pay 7.6 times your wage for a house in Bundaburg, surely???

    http://www.demographia.com/dhi-ix2005q3.pdf

  • 176 Senator13 // May 16, 2009 at 10:02 pm

    Thanks for the link Steven – it is some interesting reading.

  • 177 Steven // May 18, 2009 at 8:29 pm

    “” We all look for the easiest way to get the things we want. The greater the success enjoyed by the con men, the greater will be the number of con men. People choose a life of theft in a misguided attempt to emulate the success of the thieves, with the consequence that production falls. This analogy is fully applicable to our problems of today. Individuals have found that they can successfully use the force of law to steal from other individuals under the guise of “need,” “justice,” and “the good of society.” – The Alpha Strategy “”

    I found this quote guys
    It sums up what I think of Property investors, property speculators etc

  • 178 Biker Pete // May 18, 2009 at 9:21 pm

    You’re a seriously confused young man, Steven. Since you’re unsure if you hate capitalists more than socialists, or socialists more than capitalists, or what either means… let me help you. Your position is clearly neo-Marxist. Some of your confusion is due to your auditory discrimination problems (evident in most of your previous posts) which any good school, state or private, might have addressed in Year Two. Some of it is simply because you’re driven by vested interest (and little more) in hoping property falls. As you have no conceptual framework to ensure consistency, you’re drawn to neo-Marxist ideology, which vilifies property owners. You _want_ a property, however, but you’re unable to see this inconsistency. If your logic had any substance, you’d do a Steve Keen… and RENT forever…! 🙂 At least Keen is consistent… . And, if your logic had any consistency, you’d discard your ‘plan’ to upgrade from your first home to a better one. It’s emulating the very ‘thieves’ you despise… .

    Hope you enjoyed the property articles in last weekend’s Weekend Australian, as much as we did your Housing Affordability article. It provided some excellent investment tips! Personally, we think you’d have to have gravel in the cranium, to want to live in the 5th most unaffordable location in the world… but that’s your choice… you’re clearly a masochist! Hardly the ‘easiest way’ to fulfil your ‘hopes’. (Now remember, son… you started the name calling…. !)

  • 179 Steven // May 18, 2009 at 9:43 pm

    Biker Pete where have you been?
    I have missed you so much
    HAHAHA

  • 180 Biker Pete // May 18, 2009 at 11:42 pm

    Working… Uh, I mean ‘thieving’, Steven. The usual robbery. You know, scrubbing bricks with hydrachloric acid, shovelling sand, glueing PVC pipes, hooking up rainwater tanks, painting, installing garden edging, reticulating gardens… all that kind of larceny. (The ‘easiest way’ we _all_ choose, y’know?) 🙂

    And what have you been up to, apart from providing an amused giggle to readers of this blog?

  • 181 Steven // May 19, 2009 at 12:40 am

    Now Now Pete don’t try to Spin and twist things,
    you know better than that

    I never said working for a living was ‘thieving’,
    In fact if you want to scroll up and read what I said:
    “Because that is one thing I DO NOT ENVY people who work hard to TRY to get ahead”

    It seems you are trying to put one thing I said and trying to mix it in with another thing I said,
    Like I said Pete you know better than that…

    Stop trying to please your ego by believing your false assumptions

  • 182 Biker Pete // May 19, 2009 at 12:58 am

    You stayed up ’til 2:00 am to reply, Steven? Doesn’t ya mum give you a hard time after 8:30 pm? Why not answer the question I asked… . What incredibly honest, productive work do YOU do, when you’re not rewriting Political Science 101?! 😉

  • 183 Biker Pete // May 19, 2009 at 1:05 am

    “I quess in a way its sort of socialism really haha, they are getting something for doing nothing and getting it off other peoples hard work.So I may have contadicted myself there…” Steven. (I quess you did contadict yourself, mate!!)

  • 184 Steven // May 19, 2009 at 1:44 pm

    Dear Pete,
    I already told you in the last post don’t try to twist and spin things, Its not good for you,

    The point I was making is that most people would consider property investment as a form of CAPITALISM correct?

    I went on to say it could be a form of SOCIALISM because people who invested in properties do so in the full hope that the property would rise in value far out pacing the level of inflation and multiples of income to 7/8/9 times the annual income as opose to 3/4 times when the investor purchased the property [as you would know, because you have done it yourself], so they would take the hard earned Labour of the person who purchased the house at 7/8/9 multiples, when the investor actually did NO work to achieve that money,
    So the investor is taking the hard earned money of the buyer [who did no hard Labour to achieve that money except sit around for 10/15 years], yet that money that the investor gets was hard earned by the purchaser hence Socialism, someone getting something for nothing with the other person having to pay for it.

    So please don’t come on here and PRETEND to confuse what I was saying about people who go out and work hard accusing me of calling them ‘thieving’ when I said the COMPLETE opposite

    When I was saying the people who are ‘thieving’ are property investors hoping to make dollars off hard working people who are forced to pay 8/9 times multiple of income as opose to 3/4 times the investor payed for it.

    You seem to deliberately try to get things mixed up, becasue you know I am right and you are unable to have a debate on the things I said in relation to the topic,
    And I know your just going to come back on and dribble retric, and I wouldnt be suprised if some of your YES men came on to back you up

    And for your information I work shift work at the airport and it was my day off anyway

  • 185 Biker Pete // May 19, 2009 at 4:30 pm

    I’ll put you out of your misery, son. Stick to your airport duties. You may understand those (But I’ll cross Sydney off my stopovers in July, just in case.) You’re completely confused about politics and political ideology, Steven. Your writing is fraught with stereotyping, overgeneralisations, malapropisms (many quite funny!) and cliches.

    Please reread this gem you composed:

    “So the investor is taking the hard earned money of the buyer [who did no hard Labour to achieve that money except sit around for 10/15 years], yet that money that the investor gets was hard earned by the purchaser hence Socialism, someone getting something for nothing with the other person having to pay for it.”

    Now _that’s_ DRIVEL. Your AP issues mean you hear ‘dribble’, BTW…

    I really don’t envy you. You carry that heaviest of burdens, a chip. Moreover you’re competing for your McMansion with double-income earners; people on much higher incomes; people stepping up from other homes; rich old white people (or R.O.W. P!) as The Great Mogumbo calls them; people who understand money and taxation; people who work much, much harder than you; every counter-cyclical property investor; and people who plan. Like most hopefuls, you’ll miss the bottom of the market while you’re waiting for it to happen.

    Now to ‘my’ YES men, as you call them. Few here actually agree with me, but they respect differing viewpoints. While I’ve loudly giggled and even laughed hysterically at your posts, (y)our fellow correspondents have treated _your_ emerging views with courtesy, patience and _extreme kindness._ I don’t include myself among those who have _patiently_ explained your little faux pas to you. I’ve little patience with a 23-yo still tied to his mama’s apron strings, who angrily taunts _independent_ Aussies… and flaunts his lack of education (retric!), lack of planning (hope!) and lack of courtesy (thieves!). Your time is up. I didn’t come back here to bait the bears for their bile, but I resent the ‘T’ word, so I thought a smack appropriate. SMACK! Now, off to your room. I’m off to work! 😉

  • 186 Steven // May 19, 2009 at 5:49 pm

    Yeah I knew it
    You spent 4 paragraphs of just dribble
    Not keeping to the substance of the subject…

    All I did was address the FACTS in regards to property investors and all you could manage to do is dribble,
    Accusing me of having a chip on my shoulder, I feel like I am going around in circles explaining to you how overpriced houses are now in regards to the past of multiples of income and how people like you benifit off other peoples hard work, with you doing nothing to achieve this other than sit around for 10/15 years
    But you seemed to conveniently ignore this in your previous post…

    I find it rather irritating that you didn’t address or confess your ignorance of accusing me of calling hard working people as ‘thieving’ [Rather amussing]
    If you want to confess your ignorance of trying to accuse me of doing this I would have respect for you for doing so [but I am not holding my breath on it]

    It was a bit like you accusing me of accusing you of lying in regards to your son having all that money.

    I can see a pattern here…

    I feel like I am banging my head against a brick wall talking to you, with your ignorance of not keeping to the subject and dribbling in your attempt to try to disguise this

  • 187 Biker Pete // May 19, 2009 at 7:47 pm

    “…but I am not holding my breath on it…” Steven’s Last Post

    You’ve misunderstood, Steven. I don’t need your respect… and I would be very worried if I had it. I wouldn’t hold my breath waiting for The Big Property Crash, either. Like the little kid at Christmas you’ll find your stocking is full of coal. I prefer my stockings with legs in them…!

    Traditionally, when things are too expensive, people move. If you’re afraid to pay 9 times the average wage, move. The last two centuries are replete with examples of human emigration to more affordable locales. Move to the US, for example, where the average wage is $36,000.00. Or do what many couples do… lower your expectations to match your income.

    Your imagery is wonderful, by the way… . Is it airport talk?:

    “I feel like I am going around in circles…. banging my head against a brick wall”

    (Image of large child, arms outstretched, circling the room, making aeroplane noises, missing doorway… . Giggle!~)

  • 188 Tony Hansen // May 19, 2009 at 7:50 pm

    Just wondering about the whole 3X or 9X thing.
    I don’t think the previous generation buying a 3X house would have ever dreamed of the sort of houses that now sell for 9x or 10X. Please correct me if and where I am wrong.
    Just what was a 3x house like 30 or 40 years ago? It seems to me that FHB trying to compete in the 9X range maybe need to think about what earlier generations found acceptable.

  • 189 The Great Mogumbu // May 19, 2009 at 8:07 pm

    Sorry Biker Pete: “…after grabbing a calculator and beating it into submission by repeatedly punching in $614.53 a week times 52 weeks to find the “average” annual income, I see that the average income is $31,955.56 a year.”

  • 190 Senator13 // May 19, 2009 at 10:26 pm

    Steven, I don’t think that anybody is disputing the fact that median house prices are now at up to 9x average yearly earnings.

    The thing is, ranting on about it is not going to bring the price of houses down. You can wait and hold off because you think they will come down and get better value for your self that way or you can try and think of ways to expand your means. But complaining is not going to do anything. You can argue with Biker all you like, but it is not going to budge the house prices.

  • 191 Steven // May 19, 2009 at 10:59 pm

    I was right wasnt I

    Here come the YES men….

  • 192 Biker Pete // May 19, 2009 at 11:01 pm

    “People choose a life of theft in a misguided attempt to emulate the success of the thieves, with the consequence that production falls. Individuals have found that they can successfully use the force of law to steal from other individuals
    It sums up what I think of Property investors, property speculators etc”

    AND

    “So a person is working really hard for it only for it only for it to be taking from someone like Biker Pete who really didn’t do anything to diserve that money other than buy the property years ago at 3 times the average wage before the person purchased it at 10 times average income so Biker Pete can go and live the high life buying lots of stuff so that money goes into the economy Whilst the hard worker has to pay the house off in order to pay for Capitalists lifestyle…”

    Now that’s _excreta_ Steven. You don’t dribble it, you _shower_ us with it.
    Then you deny saying it!

    Yes, I take your inference of _theft_ as seriously as you would if I accused baggage handlers of removing multi-tools from passengers’ stowed luggage.
    I can see the headline: ‘Young Baggage Handler had $100K in Account.” How’s that feel, Steve?! Now of course I’d NEVER accuse a fellow blogger of such a theft, even though my wife’s Christmas gift to me (a Leatherman) was pinched from her bags. What is the going rate for a multi-tool at Cash Converters, BTW?

  • 193 Greg Atkinson // May 20, 2009 at 7:58 am

    It seems buying a house is actually getting easier according to this article in the SMH today: http://www.smh.com.au/national/home-affordability-dramatically-better-than-five-years-ago-20090519-bear.html

  • 194 Biker Pete // May 20, 2009 at 10:16 am

    The Financial Review also carried a similar story, Greg. Sydney homes more affordable than any time in the last 15 years. Most expensive homes in Australia remain Brisbane and Canberra.

    Although our niche is _building_ upmarket houses and ‘upspec-ing’ them using our own subbies, we were tempted into a four-year-old Ventura home during the weekend. While it lacked several features we supply as standard (aircon, internal entry from garage to house, automatic retic) it was impressive for $458K (4BR, 2BR, DG, very nice elevation, opposite parkland near beach, top location). That’s seven times annual income for the area, but _we cannot build a similar home today for less._ Owners are building a palace on the beachfront 800m from their Ventura. We believe they’re not making much on the latter, although they’ve enjoyed la belle vie for four years in that home. My point is that while such finds are rare (first we’ve inspected which actually impressed us value-wise) they do exist. Perhaps the market has plateaued in our suburb-of-first-choice. (Our other location is still rising.) Despite this, realtors are running out of houses, especially in the $390K-$500K market. We’re getting calls from the general public (as a result of our private For Sale signs) but _realtors_ are now phoning us! One admitted they have no stock. This may be a FHOGhorn effect, or it may be a slowdown-in-housing- investment effect. It’s also occurred to us that demand may already be picking-up as a result of the new superannuation limits. We’ve reduced our own planned commitment to super for ’09-’10 by 40%… and that income will definitely go into housing, as a result of tax changes. It would be interesting if investor demand replaced FHOG demand, now that our access to 18%+ (first year in super ‘return’) is so limited…!!

  • 195 Steven // May 20, 2009 at 5:42 pm

    Biker Pete,

    I have explained this before and I stand by exactly what I said,

    The wealth you made off your investment properties “YOU DID NOT EARN”
    Its other peoples hard work that made you wealthy
    You hardly had to LIFT A FINGER

    So yes I would call this legalised “theft” and I make no Apology for it,
    Take it seriously I don’t care

    And once again you have refused to apologise for accusing me of calling HARD WORKING PEOPLE as ‘thieving’

  • 196 Biker Pete // May 20, 2009 at 6:36 pm

    That’s good. You’ve admitted it, finally. You called me a thief. Denied it…. now you admit it. All that wriggling and writhing… and it really didn’t hurt that much, did it?! He, he, he….. 😉

    Frankly, Steven, I don’t care _where_ people choose to invest… but I find your ‘DIDN’T LIFT A FINGER’ comment interesting… . Do buyers of gold flex a digit to make money? Do daytraders and ASX afficionados elevate a pinky? How much effort does it take to _sit_ on money in the bank… and claw interest from families purchasing homes? You see, all these investors (and yes, you’re an investor, unless you have your cash stash in the mattress) do very little to make a profit (or thieve, as you’d term it… .)

    How much effort do you think it took me to switch my wife’s super from cash, at 3240; to ASX… then recently bail back to cash at 3800? Yes… I lifted my index finger and made your annual wage (tax free) in three months…! Timing… or luck? Who cares…. ? I hardly had to LIFT A FINGER.
    (Are YOU still _lifting_ things, Steven?)

    My son, it’s clear you suffer from Jankes Syndrome. Janke was a Spaniard who daily watched thousands of rich tourists swarm through the plaza near his workplace. He developed an intense hatred for the ‘Haves’. His incessant overuse of the bad finger apparently resulted in a new form of carpel tunnel syndrome, accompanied by hair growing on his palms; and incontinence. Fortunately there is a cure: post-natal birth control apparently relieves the diarrhoea instantly. Yes, it’s a drastic remedy, but in your case, I don’t think anything else will work… . 🙂

  • 197 Steven // May 20, 2009 at 7:04 pm

    “That’s good. You’ve admitted it, finally. You called me a thief. Denied it…. now you admit it”

    Can you please tell me the number of the post in which I denied calling you a theif?

  • 198 Greg Atkinson // May 20, 2009 at 7:30 pm

    Steve, Biker Pete let’s call it a truce. We will run out of space in the cyber-sphere before you two will agree on anything so time to move on and get back on topic as they say 🙂

  • 199 Greg Atkinson // May 20, 2009 at 7:40 pm

    Biker Pete I guess the real estate market is correcting in a way, but perhaps it is doing it in an orderly and good way. Some areas where prices went over the top are coming back to earth, but this happens from time to time even in the good years.

    For me the market is getting really hard to understand because of the impact of low interest rates and the FHOG. I wonder if we have ever had a combination where the grant has been this high and the interest rates this low before? Perhaps this will turn out to be a nasty brew if in the future rates head up?

  • 200 Biker Pete // May 20, 2009 at 8:10 pm

    Yes, it’s a correction, Greg. By definition, that means win/win. It’s ‘correct’. What’s balancing the Grant / Low Interest Rate is the banks’ changed lending requirements…. the stringency of which rival the seventies. A nasty brew? Perhaps… . Remember that there are a raft of phenomena out there, about to beach… . New super rules; Baby Boomer retirements; historically low returns on bank interest; a sharemarket so volatile that online super transactions can make one real money, tax-free; Transition-to-Retirement rules which provide us with a _fourth and _fifth_wage_ untaxed; thousands of immigrants with a work ethic higher than ours, upwardly mobile; and a young, incredibly intelligent and skilled elite, pulling in millions globally. Clearly, _all_ don’t fit that bill… 😉

    We didn’t buy the Ventura home, even though it’s just 1.27 times our annual income. We figure we can still ‘outbuild’ the existing market. My wife’s most recent purchase? A 670m2 block with _water views_ (with $21K fencing and landscaping thrown in!) for $137K. We _love_ corrections! 🙂

    And yes, I’ll ignore the static… my apologies for having fun at his expense… .

  • 201 Steven // May 20, 2009 at 8:12 pm

    Yeah I understand your concerns Greg
    but this is the 3rd time he has accused me of saying something I never said its getting quite frustrating:

    1.Accused me of saying he was lying in regards to his sons wealth
    2.Accused me of calling hard working people as ‘thieving’
    3.Accuused me of denying I called property investment as a form of ‘thieft’

  • 202 Pete // May 24, 2009 at 8:01 pm

    Steven:
    I hear your points. But like Senator said, there’s no point repeating them over and over.

    By all means voice your opinion, but don’t argue with Biker. All he does is avoid the point and attack the person. So far he has constantly attacked you, and you keep coming back for more. All you are ultimately succeeding in doing is providing him with further platforms to gloat about something or other (which says a lot about his character).

    He says things like this “Yes, it’s a correction, Greg. By definition, that means win/win. It’s ‘correct’.”

    Not even worth reading. No new ideas coming from there, just the same old shenannigans from an old man who cannot adapt to a changing world.

    You do not need to argue, or attempt to win an argument. Let time and patience do that for you.

    However if you do have new ideas, theories, or questions, by all means post them. I’d like to hear them.

  • 203 Biker Pete // May 24, 2009 at 8:29 pm

    Ah, the song of the Property Wannabes, as quite distinct from that of the Property Bears. Oh to be young again… homeless… and know it all! 🙂

  • 204 Pete // May 25, 2009 at 12:24 am

    I certainly hope old age does not affect my ability to understand logic as it appears to have done to you Biker.

    We are from different worlds. And we are headed to different ones too. I doubt I will agree with you on most things you say, because your vision is clouded by favourable economic times in the past that you falsely attribute to ‘wisdom’.

    There is no point in us discussing anything. And every day I feel much better knowing that I won’t need to try and provide a rational alternative to your emotive real estate bullishness. It seems the media and good old reality is starting to do that for me.

    So you may say what you like, you may misquote me on DR (again) and give out your poor advice. I’m happy to ignore it and will stick to my pursuit of logical reasoning.

  • 205 Greg Atkinson // Jun 1, 2009 at 9:54 am

    U.K. House Prices Stop Falling for First Time in 20 Months By Jennifer Ryan (extract)

    June 1 (Bloomberg) — U.K. house prices stopped falling in May for the first time in 20 months, adding to evidence the property market slump is abating, a survey of real-estate agents by Hometrack Ltd. showed.

    Average prices in England and Wales held at 155,600 pounds ($251,000) after they declined 0.3 percent in April, the London- based property researcher said in an e-mailed statement today. On the year, values dropped 9.6 percent.

    The U.K.’s worst recession in at least three decades may be easing as the Bank of England pumps newly-printed money into the economy. Reports last week showed that consumer confidence held at the highest level in almost a year and house prices unexpectedly jumped by the most since 2007.

  • 206 Pete // Jun 16, 2009 at 12:17 am

    The U.K.’s worst recession in at least three decades may be easing as the Bank of England pumps newly-printed money into the economy. Reports last week showed that consumer confidence held at the highest level in almost a year and house prices unexpectedly jumped by the most since 2007.

    LOL – …pumps newly-printed money into the economy

    Ah, it’s all fixed then! Lets wait 12 months, check the trend, and also have a little look at their inflation rate.

    I’ll be very interested to see if there comes a point when they stop printing money. Can a Gov. who has started down that path, actually stop themselves? Or will it be the “hey this appears to be working, lets not suffer any longer, print a bit more to make things even better” approach that I expect?

    I think it will be an addiction that is very hard to kick.

  • 207 Ned S // Jul 11, 2009 at 5:08 pm

    On 26 November 2008 Steve Keen had this to say about the bet: “If house prices drop less than 20% peak to trough, I lose; if they fall 40% or more, Rory loses, and the loser has to walk from Parliament House to Kosciusko.”

    http://www.debtdeflation.com/blogs/2008/11/26/parliamentary-library-vital-issues-seminar/

    That seems to be a pretty convoluted bet – Despite the much vaunted 40% drop figure that would turn the other bloke into a walker, Keen’s only risking blisters if they don’t drop by at least 20% – While I’d still regard it as a gutsy punt by Keen, it isn’t anywhere near as radical as betting on them going down by at least 40%

    Seems to me like a drop of anywhere between 20% and 39.99% means they both get to keep sitting on their bottoms and playing with their mathematical models – Maybe I’m misreading it???

  • 208 Greg Atkinson // Jul 11, 2009 at 10:23 pm

    Ned this is the pretty standard sort of prediction made by many economists and market “experts”. They leave themselves so much wriggle room that is hard for them to ever be wrong. A good example is the people who reckon they saw the current stock market crash coming..what they actually predicted was a market crash but they generally never defined exactly what that meant and were not very precise about the timing. Since we have some sort of major market correction every few years they had to be right sooner or later!

    Here is my big prediction..there will be another stock market bull run and it will drive up the All Ords by around 10% or more. That covers me now for any rally that is above 8% or more over the next year or so. Am I a legend if this turns out to be true? No, just very vague.

  • 209 Dan // Jul 12, 2009 at 8:03 am

    Yeah, politicians are so much like car salesmen – “we’ll even throw in 6 months warranty*” .. then you read the fine print and it says “warranty is for the engine, but not if the engine falls out of the bottom of the car when driving over a bump.. etc etc”. They tell whatever misleading crap they can get away with.

    The fundamental question I ask myself is.. is the economy screwed up, or is it sound? That’s the only question that needs answering, because if it’s screwed up, then it’ll be hyperinflation, and unemployment, and soup kitchens and all the trauma. If it’s sound, full of green shoots and all that, then it’ll be low interest with low inflatin, and steady, predictable growth with sustained consumer demand. Which will it be?

  • 210 Greg Atkinson // Jul 12, 2009 at 9:39 am

    Dan the I think future of the Australian economy is largely beyond Australia’s control. If there is a strong demand for our commodities then we should be okay but I see warning signs on the horizon. For example the Japanese have developed a way to make high quality steel using an electric furnace which means no coal is needed. If this technology was to spread to steel makers around the world then they would be able to wean themselves off a lot of Australian coal and this may start to hurt our export earnings.

  • 211 Cynical Cyril // Aug 4, 2009 at 12:25 am

    If the Japanese furnace is electric then they still need to power the turbines to generate electricity… Uranium? Gas? Both are resources Australia can supply for many years to come… We are not just a coal producer. I would agree that yes, it might hurt our coal industry but the Uranium and Gas producers will see increased demand if this type of technology takes off.

    And as for RE being 7 or 10 times average incomes… Average household income is, in my opinion, the true gauge to use for historical comparison as times have changed with regard to workforce participation (i.e. many married women in the workplace) which was initiated by the equal rights movements, our aspiration to have bigger and better and the need to keep up with the Jones’ etc. Now it is just seen as normal.

    I believe, from memory, that average household income in Australia is circa $100k… This would make a $400k house 4 times average household income which is a bit more reasonable I’d say. We need to compare apples with apples, not 1970’s oranges. Times have changed dramatically folks!

  • 212 Greg Atkinson // Aug 4, 2009 at 9:13 am

    Cyril – I agree with you about incomes and home prices etc. I have been ranting on about such things for a while. I generally see no use going back more than 10 years when looking at most data because things change so much.

    In Japan they use mainly nuclear power and so exports of Australian Uranium should do okay. Australian exports of LNG should also do well but in both areas there are alternative suppliers and so Australia should not assume that in the future our mining companies can set prices like they did with iron ore during the commodities boom. (and remember, some of the mining companies may no longer even be Australian owned!)

  • 213 Anon // Sep 27, 2009 at 5:11 pm

    That charts source article is here: http://www.whocrashedtheeconomy.com/blog/?p=397

    Household debt, as a percentage of household disposable income:
    http://www.whocrashedtheeconomy.com/householddebt09.gif
    Source Article: http://www.whocrashedtheeconomy.com/blog/?p=556

    I have looked at that debate. It is quite extensive. I wont spend much more time on the housing debate. I think the bubble is clear and the consequences obvious. We will see who is correct in a few years.

  • 214 Greg Atkinson // Sep 27, 2009 at 5:24 pm

    Anon thanks for the links. I have moved your comment over here since it is more related to the home price debate. By the way, I am not holding up your comments, the system does that if there are three or more links. (it helps stop spammers)

    I will have a look into the information you posted and comment later…time for dinner now, about to head out for some yakitori 🙂

    P.S. Here is the original link to the chart you posted earlier in case anyone else wants to have a look: http://www.whocrashedtheeconomy.com/realhouseprices1880to2008.gif

  • 215 Greg Atkinson // Sep 28, 2009 at 10:47 am

    Anon one thing I always struggle with when I look at a home prices graph is what exactly they consider is a “home”. How do you compare a home for example in the early 1900’s to a home now? I am guessing if you looked at the price of aircraft since the early 20th century to now it would look like we are in an aircraft prices bubble perhaps, but of course we are not comparing apples to apples as the saying goes.

    To get over this I see the creator of the graph uses an index, but I cannot see how this index was calculated? I am not saying anything is wrong with the index, but both sides of the property debate do tend to tweak data to suit their point of view.

    As for debt, I do worry that people tend to take on a lot of debt these days but the GFC has cooled things down somewhat. I think most people so far that have run into serious trouble with loans were investors who took on large margin type loans, not so much “standard” home loans as such. For example many of the people who have sold homes in the top end of the market used the equity in their homes to leverage into shares, and so when the stock market went into free-fall they were basically wiped out.

    Having said all of the above, if Australian home prices do not take a bit of a breather next year then I might start to get very nervous.

  • 216 Biker Pete, Vancouver // Sep 28, 2009 at 2:51 pm

    Thanks for the graph, Anon. It demonstrates the resilience and strength of the Australian housing market, as opposed to the severely troubled US market. There are numerous reasons (none applicable to Oz) why the US and UK housing markets crashed. One of the eight threats to validity is the tendency for naive researchers to generalise findings to dissimilar contexts… . An example is Keen’s assumption that because US and UK housing markets crashed, this would occur in Australia. Our world travels reinforce our view that, in highly desirable locations, adjacent areas of high employment, prices are steadily rising; almost as fast as rents. It appears that those waiting (years!) for the Great Property Crash are falling steadily behind. Those who claimed cash as king are around 2.6% worse off annually… before tax! As many of these tragics stated two years ago: Time will tell. (Time certainly is telling… .)

  • 217 Anon // Sep 28, 2009 at 4:01 pm

    When people begin to justify bubbles we should all run for the hills. Alot of smart people justified the dotcom bubble prices, which made alot of sense at the time, but in hindsight were rediculous.
    History has shown bubbles eventually deflate. How far into the future this occurs is uncertain.
    This happened in the super cycle, the “new era”, the dotcom boom, peak oil, the credit boom, the tulips boom. They all ended the same way. Speculators continue to make the same mistakes over and over.
    The longer this housing boom goes for the more parabolic the drop.

  • 218 Pete // Sep 28, 2009 at 8:31 pm

    You’re right on Anon.

  • 219 Ned S // Sep 28, 2009 at 9:54 pm

    I think most people were expecting a correction – Rudd did the FHOG thing. The RBA crashed interest rates. And the banks rushed out and recapitalised so they could withstand housing price declines.

    But our good friends in Asia who had worked hard and saved during the boom years were cashed up and kept buying our stuff. And hopefully still will.

    I suspect that demonstrates the resilience and strength of Asian nations that are in surplus rather than of the Australian housing market as such though Biker? And it means that Oz housing effectively got stimulated without a recession to offset the stimulus.

    In that light, Mr Obama’s desire to see Asia change it’s frugal saving ways is worth bearing in mind. If that should happen, Asia (and thus Oz) become more at risk of recession than we have been of late. Might be time (for me) to start paying a bit more attention to Asia and a bit less to the US.

  • 220 Pete // Oct 1, 2009 at 12:38 am

    Ned:

    Incidentally our “good friends in Asia” may not be our good friends for too long. Not if we keep straining the relationship.

    See this from the FIRB: Keep stake at 15%: FIRB
    Looks like we are playing hard to get. It may not work.

    Some other points that strain relationships with China:
    – the Uyghurs issue
    – Stern Hu issues
    – issues with Rio and BHP previously not honouring resource contracts and playing dirty with China
    – the Rio/Chinalco investment debacle
    – other investment issues (such as the Woomera testing site)

    I am sure there is more.

    Also, India is starting to dislike us thanks to a few Indian student bashings (and their media, which over sensationalises things – it is crazy).

    And it is worth noting that China has been depleting their reserves…by stockpiling and buying up assets, etc. From my understanding they don’t have a whole lot left. The more the USD destroys itself, the less they have, and also the less they will be able to sell to the US (which means less profits too).

  • 221 Ralph // Oct 1, 2009 at 9:35 am

    Well, the first home buyers boost halves today. So now is the time to start watching what happens. Absent any more interference, I’d expect to see a stabilising of prices in the first instance with falls over time – perhaps the next 12 months. As Greg has said, probably only 10% or so – I think the expectation of future price rises in Australia is ingrained.

    I see the RBA making noises about house prices recently too. Does this mean they are going to raise rates or just jawboning? I reckon a bit of both. Even so, I think that even a small rate rise has the potential to soften house prices.

    My view is that the housing market is very precariously placed right now. It was poised to fall last year before the government stepped in to prop it up. Now the props are being taken away, I think we’ll see how it copes without support. If real estate is so strong, it shouldn’t need government support. Should it? Now that support is being taken away, we’ll see how strong it really is.

  • 222 Anon // Oct 1, 2009 at 10:11 am

    good points ralph

  • 223 Pete // Oct 1, 2009 at 1:33 pm

    Ralph:

    My view is that the housing market is very precariously placed right now. It was poised to fall last year before the government stepped in to prop it up. Now the props are being taken away, I think we’ll see how it copes without support. If real estate is so strong, it shouldn’t need government support. Should it? Now that support is being taken away, we’ll see how strong it really is.

    I agree with you there. If the property bubble starts to gain downwards momentum, things could get nasty.

    Couple this with any potential stock market corrections and we will probably get ourselves into an interesting situation whereby banks are less willing to lend – further adding to the issue of sustaining adequate numbers of buyers.

    It will be interesting to see how it plays out anyway. But we shouldn’t expect changes to be instantaneous … unlike the stock market, property bubbles do not ‘pop’, they deflate slowly. This is due to the fact that it takes time and effort to sell a house, but only seconds to sell some shares (its all about liquidity of the assets).

    Look out for spruikers or property bulls claiming early victories when the bubble doesn’t look like it has deflated at all. They are simply impatient.

  • 224 Ralph // Oct 1, 2009 at 2:14 pm

    Funny, Pete!

    Biker, if the government does come out and replace the FHOG with a universal hand out to prop up house prices, the game really is over. Can they really do it, despite all the gumpf they have gone on with over the years about housing affordability? That will be a signal to the nation that real estate prices are the most protected species in the country. Banks, big polluters, car manufacturers and inflated house prices – the things that must be protected at all costs.

    If that is the case, buying a house will be the closest to a one way bet that there is. Until the government changes its mind at some stage down the track. What a disgraceful situation to be in. I guess we’ll have to wait and see what comes of it.

  • 225 Ralph // Oct 1, 2009 at 2:29 pm

    Furthermore, I’m just shaking my head at the thought that the government will be brazen enough to do such a thing. What justification would they try on for doing it? Here – everyone have some free money to go out and buy a house.

    If it happens, then I’m afraid Biker Pete has won the argument hands down. It will be open slather. I just hope that Kevvie and Goose don’t resort to that.

  • 226 Pete // Oct 1, 2009 at 2:46 pm

    Ralph:

    Funny thing is that if the Government makes it clear it is a one-way bet – then prices will rise even further. Not just a little bit, but a lot.

    Why dabble in the sharemarket if the Government will allow you to have a zero risk investment?

    The Opposition would have plenty to talk about then. Because the Gov would be clearly going against the advice of the RBA. And the RBA, what would they do? Talk themselves in circles and not do anything? (I wouldn’t put it past them though).

    I agree that if this happens, it will be a disgraceful situation to be in. But ultimately it will be the Government going against the natural forces of market even further. And just like an elastic band, the further they push, the stronger the backlash will be when they finally run out of options.

    If the Gov does choose such a path, people will still suffer:
    – through increased taxation (some type of taxation)
    – non-home owners bailing out home owners
    – extremely low housing affordability
    – paying for the needs of the boomers with money from the future
    – banks with even more leverage

    The way I see it, the bubble has no “make everyone happy” option. House price falls will hurt homeowners, banks, all sorts – but will make housing affordable for future generations. House price gains will make people relying on capital gains happy, but will hurt future generations. There is no win/win scenario, and the choices are simply to either govern for the now or govern for the future. Personally I hope the Gov doesn’t continue to choose the now.

  • 227 Greg Atkinson // Oct 1, 2009 at 3:29 pm

    What I have been watching from a distance is how the Gold Coast property market has been fairing. A few years ago this was suppose to be the place to invest (along with Dubai) because the population was increasing, new roads/transport links were going in and because of the lifestyle. But in the last few months a number of higher-end developments have run into serious trouble and some properties have been auctioned off for less than it cost to build them. I do not dare to suggest this has any application to other markets in Australia but it does show:

    1. The varied nature of the real estate market in Australia.

    3. It is possible for certain areas to fall even when interest rates are low and Government grants exist. and;

    3. Given enough stimulus, over-development etc. it is possible for regional property bubbles to form.

    So I wonder if we have other areas out there similar to the Gold Coast?

  • 228 Ralph // Oct 1, 2009 at 4:23 pm

    Frightening stuff. I agree with Pete that a universal home buyers grant would have to be hugely inflationary. Is a booming real estate market really that important? Surely the government wouldn’t be so stupid.

    I don’t think people really believe a crash is about buying a mcmansion for a bargain. Well, maybe some do. I think it’s more a case of people are seeing affordability running away rapidly and it’s concerning. The national dream seems to be on the way towards becoming just that for many people. I think most people just want to buy a reasonable house without putting themselves into overwhelming debt. I thing Greg’s suggestion of a 10% fall would achieve that.

    So overall, I think it’s going to come down to government decisions. I think the government is acutely aware of how much home ownership means to the public and won’t want affordability getting too much further out of control. Too much unaffordability would have to damage their electability as much as homeowners taking a hit to their equity.

  • 229 Ralph // Oct 1, 2009 at 4:28 pm

    Also, I reckon it’s getting into the climate change sort of territory – the public value home affordability for future generations, even if their own house values stagnate or fall a bit. I think it will get to a point where ever increasing house prices will be seen as a negative that politicians need to act on. Are we there yet? I don’t think so, but I don’t think it’s too far off.

  • 230 Biker Pete, Vancouver // Oct 2, 2009 at 12:38 am

    It’s possible that people unsure where property markets are headed may jump on every side issue for reassurance. Ralph, I could quote verbatim _countless_ angry souls whose comments assert they’ll wrest palatial homes from weeping owners. These go back almost two years now… .

    Having crossed Canada, I’m more than certain that Greg is right on the money about property marketS. In five provinces we saw superb homes, in stunning locations, for $100K – $360K. In one province we saw median prices on a par with Australia’s.
    In BC we’re seeing what _you’d_ term a ‘bubble’ in prices, with very, very ordinary city homes all around a million… . People will pay these prices, compete for the opportunity in fact, out-bidding each other in the process.

    It comes down to this: Where most people most want to live is where most people want to live. I’d feel empathy for anyone who faces this dilemma, which is, in my view an expensive folly. I’ve never once hoped that a crash would provide me with the opportunity to make a killing; but on the other hand, I’m happy to ask well beyond the going price for anything the very, very, very wealthy want.

    Pete, your statement: “…you just talk about yourself and have a few digs at others… ” has some truth to it. It would be cruel to quote back to you some of the vicious little taunts you’ve dedicated to a range of individuals and professions over time! 😉 I don’t need to… you no doubt recall them quite clearly. And yes, I do often provide examples from past experience. Perhaps that’s because I find it more relevant than stargazing, presenting _long_ lists of fanciful futuristic scenarios in which the puritanical Pied Peter, playing and replaying the same tired tune, leads the rodents to the river for retribution. I always know I’ve struck a chord when, time-and-time-again, stuck for a sensible response, you tell me I’m not welcome here… go find another forum… . While many of your posts provide mirth, it’s that bitter little jibe which provides us both with a good old-fashioned giggle! 🙂

  • 231 Ned S // Oct 2, 2009 at 6:16 am

    Biker mentioned the big picture elsewhere – As much as I might dislike it, the big picture is inflationary – I really do think it is very unlikely that central banks will allow us to emerge from this mess (in a decade or so maybe?) with their fiat currencies buying more stuff (be it houses or stocks or gold) rather than less.

    As always, I could be very, very wrong of course – But does anyone else seriously think that the Oz dollar they have in their wallet today will buy more stuff in Oz in 10 years time than it does now? (And that is not meant to be a rhetorical question – If anyone does seriously think that I’d really like to hear why you think it.)

  • 232 Biker Pete, Vancouver // Oct 2, 2009 at 7:09 am

    No, you’re correct, Ned. For a couple of decades, a group of us have met to celebrate New Years… and seal an envelope full of our predictions for five years hence. A lot of the issues we try to predict are whimsical: Who’ll win the Grand Final(?); Who will be running the country(?; Who will the US be fighting(?) and so on… . But there are a few which pose questions like: How much will a loaf of bread cost(?); How about a litre of milk(?); And a litre of petrol(?); What will the standard variable interest rate be(?) How much will the ‘basic’ Holden cost(?) etc, etc. Without fail, all the ‘basic necessities’ have risen beyond most of our predictions… . (Relative to income of course one could argue that in many cases, some items are cheaper!) Great prize for the winner… .

    I’m certain that the Oz dollar won’t buy more in five years. I’m positive we’ll have many more dollars… and need them! Not sure if we’ll be any worse, or better off. My first brand new car cost $2200.00. My annual salary was $2400.00. My first house was $32,000.00. My annual salary was around $6K and interest was well over twice today’s rates… . Even so, back then we thought we were really well off. I’d have laughed at anyone who predicted my 2009 income, the value of our main property, or any of a score of other assets, including Super.
    Wouldn’t bat an eyelid now if a punter declared a loaf of bread will soon be six bucks, water $10 per kilolitre*, a basic car $60K, and the median Australian house price a million dollars… .
    * Once had an insurance payout of $12K for a builder’s negligence in accidentally emptying a 30,000 gallon tank. Water cartage is probably even higher, now… .

  • 233 Pete // Oct 2, 2009 at 12:51 pm

    Ned:
    The big picture does look inflationary long-term, globally (mostly through the US). I think it is too early to call Australia’s fate in that yet.

    I think something to keep in mind is that inflation will not be ‘even’ across all assets, wages, CPI, etc.

    Biker:

    Pete, your statement: “…you just talk about yourself and have a few digs at others… ” has some truth to it.

    No kidding!?

    I note that you say that you think a “win/win” scenario is possible, but typically give no indication as to why you think that. Disagreeing for disagreements sake is something i’d expect from someone a tenth of your age.

    Wouldn’t bat an eyelid now if a punter declared a loaf of bread will soon be six bucks, water $10 per kilolitre*, a basic car $60K, and the median Australian house price a million dollars…

    So essentially you are expecting inflation in all sorts of prices. Note you don’t mention wages. I wonder how all these people are going to afford to even breathe in your infinitely inflationary utopia? A place where even groceries are bought using credit.

    I do often provide examples from past experience. Perhaps that’s because I find it more relevant than stargazing

    Ah, just like the foolish economists who didn’t see the GFC coming. It’s like you’re driving down a highway in reverse – watching traffic and scenery you have already passed and expecting more of the same.

    Extrapolating trends into the future without context is a fools game. It is what drives people buy high and sell low. Without considering different economic climates, volatility and systemic changes, you’re no better than someone who takes advice from the mass media.

    So Biker if you are going to argue, why not explain your argument and have a healthy debate. Having digs at people and gloating about yourself only proves that you’re a shallow, insecure person.

  • 234 Anon // Oct 2, 2009 at 1:01 pm

    “I wonder how all these people are going to afford to even breathe in your infinitely inflationary utopia?”

    lol

    “Extrapolating trends into the future without context is a fools game”

    I’ve been guilty of this

  • 235 Greg Atkinson // Oct 2, 2009 at 1:57 pm

    I guess it all depends on how big the glass is? 🙂 Anyway I think you two “Pete’s” quite often agree if you read back a bit. Would be great to get you guys together for a beer some time…separated by safety glass of course 😉

  • 236 Greg Atkinson // Oct 2, 2009 at 4:31 pm

    ….and moving right along back onto the topic at hand! I wonder if anyone else thinks it was strange that the RBA started talking about the danger of home prices going to high just as the first home buyers grant was being wound back. Wasn’t the time to be talking about that back when the Government started handing out the cash? Why now?

  • 237 Pete // Oct 2, 2009 at 8:40 pm

    Greg:

    I guess more and more it seems that the RBA may formulate their policy with the Government, rather than independently.

    Either that or they just play the game strangely. They were so caught up with the ‘confidence’ thing and were so worried about the economy that they were probably too scared to say anything, lest its effects be negative.

    Also, I do wonder about the RBA board. Remember many months ago that (scum) Ric Battelino from the RBA was actually out pushing property in a way only the RBA can. The RBA board could be full of ego’s, conservatives, flip-floppers or children. And they may have hidden agendas or ulterior motives (I hope not).

    It might be that the RBA is not forward looking at all (and we assume that they are, right?) and is in fact always so behind the times that they are completely reactionary to the economy as it stands, not as it will be.

    I wonder if the RBA is concerned that the Gov would actually take action against them, if they strongly opposed Gov policy? Perhaps there is a hidden threat of some form of action there.

    So hard to tell when we don’t know what goes on behind the doors at the RBA. Mr Stevens is very careful in his dialogue.

  • 238 Biker Pete, Vancouver // Oct 3, 2009 at 12:17 am

    “I wonder if anyone else thinks it was strange that the RBA started talking about the danger of home prices going too high just as the first home buyers grant was being wound back.” Greg

    Precisely my inference in Comment 230. We’re being prepared for November… . 🙂

    Meanwhile our population grows faster than India’s. Holy cow!!

  • 239 Greg Atkinson // Oct 3, 2009 at 7:38 am

    Pete the RBA is starting to worry me to be honest as I mentioned in my blog yesterday. They seem to think they are looking forward and are masters of the universe but when I look at what they have actually done in the last couples of years they seem to be continuously caught out. So perhaps they have gone “ooops” again and realise that their actions combined with the Government’s home buyers. grants etc. has put a little too much heat in the market?

    Biker Pete I worry about Australia’s reliance on immigration for growth. Why does a country as rich in resources as we do, need immigration so much to push growth? It seems to be that we have got ourselves into the trap now of relying on high immigration levels to keep the economy moving forward and we can’t wean ourselves off it. The question is, what would happen in terms of the housing market if the record high levels of people moving to Australia dropped significantly?

  • 240 Ned S // Oct 3, 2009 at 9:01 am

    It costs too much to birth, raise and educate our own Greg. Way cheaper to buy foreign made I’d think? Especially given that we have plenty to choose from and if we are at all picky (which we are) we get a much higher quality end product overall. That is ready, willing and able to start many years of productive work at a pretty high level. And pay lots of tax. (NZ imports being the obvious exception – Not sure why we accept them – Part of our foreign aid effort to underdeveloped nations perhaps? :))

  • 241 Biker Pete, Vancouver // Oct 3, 2009 at 11:46 am

    All interesting points, Greg and Ned. A few responses:

    * Increasing population is inevitable. Australia is one of the world’s best-kept secrets (other than Nova Scotia!) We’re the only ‘western’ nation predicted to experience growth next year… and we have a wealth of natural resources. (Love it…
    but we’ll still bail to the NH every Australian winter!!! 🙂 )

    The Aussie lifestyle is envied by much of the western world.
    We have a relatively relaxed mien, very cheap quality wines, good beer, stacks of sunshine, a geology considered relatively stable, low unemployment, a tax system which benefits hard workers; and opportunities unlimited for those who recognise them. We don’t particularly _need_ hordes from Europe, Africa, the US (once the best-kept-secret is out) and most of Asia… but as economies fail and unemployment abroad rises, Australia is going to look pretty damn good!

    However haphazard, we’ve built it… and they _will_ come.
    One of the fastest growing businesses in Europe and Asia is that of immigration lawyers, who _make it happen_ for a _large_ fee. (Note I haven’t mentioned refugees here.)

    * What would happen if we could stem the tide south? Perhaps it might slow the rental market a little. Doubt this will happen in WA, where new projects are all-over-the-map. Mining engineers, technical engineers and estimators from a dozen countries, on 457 Visas, get their residency after four years. Their partners (often doctors, dentists, secondary teachers, etc) _tend_ to earn wages higher than the Australian average.
    (This is _our_ market, BTW… .)

    * I spoke of events likely in November. I think these will reduce our rental income marginally, but assist our family (and most Australian families) positively overall. For a good giggle scan back over previous posts, to gauge the reactive horror of posts 229 and 232. (I acknowledge their quick return to equilibrium…! 😉 )

    * Too much heat in the market(S)? Greg, you’ve fallen on the same sword as the bears! 🙂 We know there are _numerous_ markets. Just one of those has risen appreciably. It is _still_ a buyer’s market in _most_ property markets in Oz.
    We’ll all (self included) look back on this period and wonder why we bought and built so little.

    Great outlook from the deck. We can see right down on the multi-storey decks of cruise ships as they pass on their way to Alaska. 🙂

  • 242 Pete // Oct 3, 2009 at 3:21 pm

    RBA aside, it seems that many of us have come to agree that, without Government intervention, the property bubble will deflate (to some extent).

    So we find ourselves in a position where we are trying to second-guess future Government actions in order to determine a likely outcome.

    I really do not see how this can be a position of ‘confidence’.

    As I have discussed before, it would seem that most Government actions will have negative financial repurcussions in the future (most would be very significant), including selling a large portion of our resource assets (although the FIRB wants only 15% stakes).

    The less significant financial repurcussions would involve immigration and overseas investment – however the repucussions to these would be to make property even less affordable for Australians, and to significantly affect the current Australian standard of living (if we even thought that it was sustainable).

    I do not think that what happens to prices in the property market between now and November is particularly significant. Large falls in price in such a short period of time would be unexpected. However the problem being that if price falls gain momentum later on, they will require significant intervention by the Gov to prop them up. If this scenario occurs, as Ralph said, “buying a house will be the closest to a one way bet that there is.

    In which case our economy will suffer greatly, because the incentive for business growth will be reduced, and replaced with incentive to speculate in property. Capital will flow to where it can achieve the greatest returns (relative to risk) and speculation in the property market may then be considered “easy money” (again).

    It will be interesting to see how this unfolds and whether there is something we have overlooked.

  • 243 Greg Atkinson // Oct 3, 2009 at 4:52 pm

    Biker Pete the angle I am coming from is pretty much related to my latest blog…in other words will we really see growth next year and where for example is our GDP going to get a lift from?

    Mining? Perhaps…but prices and volumes are down. New mining projects..perhaps again, but can they offset declines in other areas of the economy. W.A might look great, but NSW is a basket case.

    So that has me thinking about immigration. I wonder at what level of unemployment the Government would scale back immigration levels again. (remember they have scaled them back once already)

    I am not a property bubble sort of guy as you know, but the actions of the RBA and the home buyers grant without doubt have helped the market and these supports are now starting to be removed somewhat. So what will happen if another support i.e. population growth comes off the record high levels? Is that not possible?

    Yes I know Australia is a great place to live, but our attraction can wane. Just look at the fall in tourism numbers 😉

    Just some thoughts.

  • 244 Ned S // Oct 3, 2009 at 5:15 pm

    If the Oz economy cools Greg, we’ll see more stimulus. With the stimulus being inflationary. And specifically targetting housing again if required. (Rudd and the RBA [and Bernanke and China] have made a believer of me – Smile!)

    Not that I think Oz housing is great value at today’s prices. But given that it will be protected against significant falls and the future is looking decidedly inflationary, it sounds OK to someone who isn’t a smart stock market trader.

  • 245 Senator13 // Oct 3, 2009 at 5:58 pm

    Greg, Re: 231 – I think the Gold Coast is very cyclical. Another Gold Coast boom will come but I doubt it will be back for a good 3-5 years at least. Too many over extended and pushed too far. But it is a lifestyle thing up there. It is not my cup of tea but people really do enjoy that kind of lifestyle. You just have to look at the people that are flooding in from NSW to the Gold Coast area (and I assume from over seas as well?). Prices will probably pick up again in that area when the population gets to the amount to fill up all the currently empty apartment buildings and unsold developments.

    To me it seems a pretty unique little area given its position to good beaches, warm climate and lots of things to do for young people and fairly close to Brisbane. Not too many areas offer all of that. But, I don’t know where they all work on the Gold Coast that supports the market? Commuting to Brisbane might get to be a pain after a while as well?

    Not sure if WA has any areas that are unique like the Gold Cost area. But at least they seem to have the jobs to support their housing market…

    I think one thing we can conclude is that Australians are in love with property. Emotions play a very important part in any market. Emotion alone would almost be enough to prop up the RE market in Australia. There is a real estate article just about every day in the papers and hundreds of articles around the internet on the subject.

    I am not too sure what the RBA was getting at with their latest remarks. It does send mixed signals. But they do seem to be laying the ground work for further rate rises. But will their timing be right?

    I think I agree with you Ned – out of all the asset classes – Aust RE is looking, if not safer then others, possibly more predictable at this point in time…

  • 246 Ned S // Oct 3, 2009 at 6:14 pm

    * While I agree with you about the inevitability (spelling?) of Oz population growth Biker, I’d much rather head to the NH in the Oz summer than our winter – Although it would probably suit me better personally to buy a shack on the SW coast of Tassie and spend our summer there with a metal detector. (While I don’t hanker after lots of gold as an investment, I surely do think it is very pretty – Smile!)

    * What’s a basic block of land cost over your way? I seem to recall you mentioning $135k a few months back??? (In Anna Bligh ripoff land we need $185k to buy stuff about 30 km from Brisbane city!)

    * November – Too enigmatic a reference for me – My only really wild “tip” at this time would be that if a bloke really, really wanted to purchase an existing property using negative gearing (as opposed to a newly constructed one), then consider doing it before Ken Henry just maybe (?????) says We’d prefer it if all you future investors added to supply by buying NEW houses please!

    * “Just one of those has risen appreciably.” – SE Qld mightn’t have done nearly as well as Perth Biker, but with the % increase being maybe 20% in 3 years and 200% in 10 years, I’d say it is holding its own for now at least.

    Cheers!

  • 247 Ned S // Oct 3, 2009 at 6:47 pm

    Pete – I think outguessing government/policy maker/central bank (and bankster) manipulation is the new investment norm. It probably always was? But now a few more fringe dwelling dummies like myself have been wised up. There is no “free” market – Never has been. But the illusion has been credible – To the really naive and ignorant – Like me.

    Which all gives me faith in property – Now. As I see it, the value (cost!!!) is in the land. And in Oz we have a bunch of really no talent drones running state and local government who will push land costs higher because they are not clever enough to figure out how to work within a budget. With the Commonwealth government backstopping these no talent drones with our tax money.

    So betting on Oz land prices is a bet on state and local governments continuing to be no talent drones that will push land prices up – In an inflationary environment. I have decided to take that bet. Although I will certainly wait until Henry reports – Because I want my strategy to incorporate his real big picture and long term view.

  • 248 Biker Pete, Vancouver // Oct 4, 2009 at 12:14 am

    I believe you’re wise to wait for the Henry Report, Ned. I would not be surprised to see a massive shift in asset classes if it goes the way I suspect it might. We haven’t purchased land for over eight months, so I’m not sure of current values. Last block came in at $135K, but this included $9K of (future) landscaping and all fencing. We still have two very good vacant blocks, both with water views, waiting for the next step… after November. A new house commenced on a third block, just after we left. It should be completed by the time we return, mid-January.

    As for market(S), one of our tenants, a very clever bloke, is still buying and selling in areas well beyond our confidence level. He’s getting rents of $2000 – $2300 per week. (He’s paying US just $450 rent per week! 🙂 ) We _could_ play in that market, but we prefer to operate in a relatively risk-free environment.

    As you say, much of the value (in our case, anyway) is in the land. We could put a bulldozer through the two architect-designed homes on our main property… and still sell at nearly eight times purchase price… about the same as we’d get with the houses intact. As unlikely as that seems, it’s true. It conjures up all kinds of interesting questions, doesn’t it?

    Greg, we don’t believe the market value of most of our homes in the $380K – $700K range has changed significantly in the last two years. We believe that market remains pretty flat. Rents, however, have increased 12 – 15% in the last year, except where we’ve valued tenants so highly we’ve renewed leases at the same rents. At least three sets of tenants will enjoy that situation again _next_ year, providing inspections warrant this.

    Yes, the government may well scale back immigration. Pressure from WA will mean that select people with valued skills, high incomes (and funds) will keep our markets steady. I suspect that the variance in different states’ property values might soon be similar to those in provinces here. We can buy a beautiful mansion in lovely Nova Scotia for just $350K, but a comparative home is $3mil here in BC. (In a few weeks we’ll move into our friends’ beautiful $8mil holiday home in Whistler, while they’re holidaying in Hawaii. Is it _worth_ $8mil? Won’t know until we try it… ! 🙂 )

  • 249 Ned S // Oct 4, 2009 at 7:20 am

    Senator – I can’t get a handle on where policy makers would like to see us go on a number of pretty important issues. For example:

    * Do they want to see us putting more into super or not?

    * Do they want to encourage us to save or do they want us to spend (and then borrow more) while relying on foreign capital for investment purposes?

    Some things that there wouldn’t seem to be much doubt about is that they think there is a shortage of housing and would like to see more of it built but reckon that higher house prices don’t make us any wealthier as a nation but don’t want to see significant house price declines either.

    On the international level we’ve even got strange things going on like surplus and deficit nations and the G20 and the IMF chatting about whether money is best viewed as “made round to go round” or “made flat to stack” and given that the deficit nations certainly think the former is best, trying to figure out how it might be possible to encourage the surplus nations to give up their frugal saving ways.

    It may turn out that we were fortunate that the GFC came along when it did in relation to the Henry tax review. In that such issues will hopefully be being considered. And while the answers will presumably be that some sort of balance is required, I’m hoping to get an idea of just which way that balance might lean – Given that in an unforeseen crisis situation they reckon they can stimulate like crazy (and presumably then destimulate like crazy?) and it will all be “fixed” – As best it can be anyway.

    The thought has certainly crossed my mind that I could be hoping for too much from the Henry tax review. But at this stage one just has to wait and see. In relation to pretty much everything. With housing specifically being of great interest of course.

    While it could be that Henry sidesteps it as too hard for now and says something like that will be reported on seperately later, last year’s senate review of housing affordability did put the ball in his court when it said things like the following:

    Recommendation 4.1 (p. 62)
    In the interests of more informed discussion of arrangements to encourage affordable housing, the Treasury be asked to publish current estimates of various taxation and related measures affecting the housing market.

    Recommendation 4.2 (p. 69)
    The committee recommends that Australia’s Future Tax System Review Panel consider the implications for housing affordability, as well as the overall fairness of the tax system, of the:
    • tax discount for capital gains on investor housing;
    • exemption from land taxation of owner-occupied housing; and
    • current negative gearing provisions.

    http://www.aph.gov.au/SEnate/committee/hsaf_ctte/report/b02.pdf

  • 250 Biker Pete, Vancouver // Oct 4, 2009 at 8:16 am

    Ned, I guess you’d also have to ask this: “What single policy initiative might Labor take to:

    a.) create equity and fairness right across the board(?)

    b.) increase availability of housing…

    c.) … keeping rental returns low(?)

    c.) protect Australia’s construction industry(?)

    d.) increase land development across Australia(?)

    e.) guarantee their re-election(?)”

    The question of retrospectivity is interesting, too. It’s generally the principle that if new tax policies are introduced, acquisitions prior to that date are exempt. We’re unable to think of any situation in which that hasn’t been the case. However in that sense buying prior to the actual date of declaration might make sense; but that’s too tough a call… .

    Wouldn’t rule anything out, but some possibilities would be political suicide. Others would raise rents through the roof.* Still others would see super contributions dry up… ; or bank deposits dwindle. It really _IS_ brain surgery plus rocket science!! 🙂

    * Son (24) happily paying $2700/month rent in Montreal.

  • 251 Greg Atkinson // Oct 4, 2009 at 8:26 am

    Reading all the comments over the last few weeks makes me think that the most likely outcome for the residential property market is a correction of around 10% over the next couple of years, although as Biker Pete knows, I don’t like trying to bunch together the varied real estate markets in Australia into one overall statistic.

    Some “mini bubbles” have already been deflated in places like Palm Beach just north of Sydney, many of the new developments on the Gold Coast and in plenty of top end markets where the once mighty masters of the financial markets have fallen.

    I would guess homes in the first home buyer’s range will also ease back next year but maybe a phased correction in real estate prices might just be the way to get an orderly correction?

    Then if prices remain fairly flat and interest rates don’t soar we might just get a nice soft landing where few people get burnt.

    But could the Ken Henry review shake things up? Maybe that is material for another post as we seem to be going down that path.

  • 252 Ned S // Oct 4, 2009 at 9:59 am

    Retrospectivity – I suspect the principle is pretty much enshrined in tax culture Biker. It would be extremely unusual – To assist people who’d been very badly disadvantaged in a totally unintentional manner just maybe? Or to close a “loophole” that was exploited SO blatantly it could be argued independently in the highest court of the land that the actions were fraud irrespective of what the tax legislation said? But anything much else would undermine confidence in the taxation system in a totally unacceptable way.

    As to the challenge question regarding making all of the people happy all of the time – The tax payer gets to subsidise new land developments perhaps? But can that be achieved without smarty developers and state and local governments effectively adding the subsidy to the final land cost? While also bearing in mind that in a lot of regions, the preference really is for higher density dwelling, rather than more land as such? Tricked if I know. I might have a bit more of a read on the NRAS though.

  • 253 Biker Pete, Vancouver // Oct 4, 2009 at 11:44 am

    Why should investors alone get a tax break on their mortgages, Ned? It seems unfair that one group of property owners should get a 40% break… and others nothing… .

    And, yes… the taxpayers _would_ pay for this. A few, who owned their homes outright… would be alarmed… until they realised the potential… ha,ha..!! 🙂

    As I say, a lot of things _might_ happen. Who would have expected $900 cheques in the mail and $21K FHOGs(?) And Yes, giving ALL home owners a tax claim for their mortgages would achieve the six goals I listed…

    Regardless of whether my supposition comes to pass or not (we don’t need it, anyway) you’re right, Greg. Could be a whole lotta shakin’ goin’ on…! 😉

  • 254 Ned S // Oct 4, 2009 at 2:19 pm

    It would at that Biker! One of the suggestions re the FHOG (in hindsight) was that it would have been better given out over a number of years rather than as a lump sum up front. I’m looking forward to seeing the pollies’ reactions to what is proposed though – Seeing them say we won’t do THAT; When you know that if it’s recommended it is probably not so much a matter of if as when.

  • 255 Pete // Oct 4, 2009 at 5:14 pm

    I suspect that one of the next steps the Rudd Gov will consider is to give investor bonuses, for new (or maybe existing?) rental properties – probably for low income earners.

    Eg, if you build a new place, you might get a rental subsidy. Lets say you build (or buy) a place for $400k, yet would normally only get less than 5% rental yield on it – the Gov could pay you 3%, providing you drop your yield to 4% (total 7%). The increased yields could encourage people to buy up (and build) houses as investments a bit more.

    The supposed benefits would be:
    – renters happy
    – investors happy
    – property bubble price increases, or at least some support

    At taxpayers expense of course. And at the expense of keeping a bubble inflated for a bit longer until the next bright idea comes up.

    I guess we’ll see. The fact that Government intervention is required says a lot about this country – and its future.

  • 256 Ned S // Oct 4, 2009 at 6:01 pm

    Hot damn – I’ve been expecting this to come:

    http://www.smh.com.au/national/treasury-signals-tax-break-on-savings-20091001-ger8.html

    And getting frustrated by the lack of any mention of it.

    I think the penny has dropped as to what you meant when you said “We know there are numerous markets. Just one of those has risen appreciably” too Biker! Hmmm.

    Never mind Pete – At least we weren’t actively short the housing market like we might have been if they were stocks. The NRAS has a lot of the elements that you mention.

  • 257 Senator13 // Oct 4, 2009 at 8:55 pm

    I think it is an excellent idea to tax savings at a lower rate. It is not much incentive for many people the way things are currently. There are a lot of people out there that are not savers by nature so anything to help people save is a good thing.

    Going from recommendation to policy implementation is another thing. Rudd can just pick and choose from the review recommendations. He can take the ones he likes and claim that “the review recommended it” and the ones he does not like he will claim “the purpose of the review was to only look at all options across the board…”

    The Review was originally conceived pre GFC – how many recommendations will have a pre GFC mentality and how many will have post GFC type recommendations? Too much of either mentality will not be good. Striking the right balance will be hard. I just hope that the review is not used as an excuse for blatant tax grabs. Rudd has a history of pushing things further then originally planned and always makes sure he has written in little outs for him self so that it is never his fault. It is always someone else’s recommendation – even though he is the one implementing them and ultimately has the final say.

  • 258 Ned S // Oct 4, 2009 at 11:14 pm

    The full spiel is here Senator:

    http://taxreview.treasury.gov.au/Content/Content.aspx?doc=html/speeches/09.htm

    He does at least seem to be committing himself to putting the pollies in the hot seat when he says at the end “Judgement is required. Over the next couple of months, we will be refining our judgements on these important issues as we finalise our report on the tax and transfer system.”

  • 259 Pete // Oct 5, 2009 at 5:34 am

    Great comment Senator, I very much agree.

  • 260 Greg Atkinson // Oct 5, 2009 at 8:28 am

    Senator I think the whole tax review should have been put on ice until things settled down a bit. As I wrote a few days ago in: A slow global recovery, the Australian economy & the stock market I believe the Ken Henry review is just simply making people nervous when the focus should be on doing exactly the opposite.

  • 261 Ned S // Oct 5, 2009 at 9:30 am

    I feel the opposite Greg – I’ll be extremely happy to get some feel for direction.

    I was pretty concerned given the pre GFC mentality that Oz saw itself as an endless cash cow that could just continue to dole out the bounties of the harvest to all and sundry regardless of their labours in the fields. And during it that some turkey might say saving really is very bad – We want people to spend, spend, spend. Whereas Henry seems to being about as sensible as one could hope for under the circumstances – And a bit smarter on some potential risks than he might otherwise have been.

    I expect we very well may get a report that empathsises investing for the greater good to the overall future advancement of Oz socialism as manipulated by pork barrelling pollies. But at least saving and investing is getting a good rap and that is a positive – From where I sit as a natural enemy of the ever growing welfare mentality.

  • 262 Greg Atkinson // Oct 5, 2009 at 10:00 am

    Ned S the report I guess will only be stage one of a very long and drawn out process. We all know what Henry suggests and what actually happens will be two different things. The confusion will be that nobody will know what Rudd is likely to pick up and what will be dumped, and he won’t know until he has some poll numbers. In the meantime how can anyway be sure what will happen? I just not think it is a good time to have an ETS and a tax review hanging in the air.

    But since we are talking about home prices maybe what you say is true..maybe home owners/property investors prefer the review to be out in the open and feel confident Henry will do the right thing by them?

  • 263 Biker Pete, Vancouver // Oct 5, 2009 at 11:38 am

    Thanks for that link, Ned. Seems like a sensible initiative.

    “The Review was originally conceived pre GFC – how many recommendations will have a pre GFC mentality and how many will have post GFC type recommendations?” Senator13, 265.

    An excellent point, S13. Any ideological tenets must be tempered with the current and likely future financial situation in mind. Even the current situation is difficult to define. Bonner’s claim that we’re experiencing a ‘depression’ not only doesn’t ring true for most of the world, we’ve personally seen no evidence of this even in the US, so far. Yes, it’s a recession in the US, with unemployment about to hit 10%. Rudd & Swan’s predictions in that respect haven’t yet come to pass in Australia. It may well be that our unemployment figure settles at half that of the US… !

    The ‘stuff we know about’ is thought-provoking. It seems likely, for the US at least, that there’s a lot that hasn’t yet surfaced.

    There’s a strong possibility that very little may change as a result of the Henry Review…. the probability that Rudd & Co will bury some recommendations which are political suicide. Death taxes come immediately to mind… . 🙂

  • 264 Ned S // Oct 5, 2009 at 2:29 pm

    I think a very thoroughly thought out report on what is seen as desirable and even necessary by someone in Henry’s position measured against the broad views of Australian society as he perceives them to be could be extremely useful to me personally Greg.

    As I’ve mentioned before, I’ve only been back in Oz basically fulltime for a couple of years now. And there is certainly much that I’m critical of. It’s a danger in going away and coming back and finding “it’s” changed and that a bloke hasn’t changed with it I guess. (Or while he has changed, he’s changed in different directions.)

    But either way it is not good. And at some point I’ll need to decide what I’m going to do about it. And am hoping that Henry’s assessment of just really where we are at and should be going as a nation could help clear up any misconceptions I might have – It is just possible I’m seeing the differences and overexaggerating them off course – Or underestimating their potential to swing back to something a bit more middle of the road in time.

    Or then again Henry just might say, Nope, that really is what Oz is about these days Ned so you better figure out if you want to like it or lump it!

    Rudd will to all intensive purposes kill off the stuff that is deemed politically unacceptable at this time. So unless a ginormous stuff up is made, it shouldn’t be destabilising – The opposite in fact even I suspect. With “that” being out of the way being the general perception.

    As to housing specifically, nothing that is destabilising at this time is the only possible call I imagine.

    Death duties Biker – Even as a kid growing up in a working class family I can remember being shocked that such a thing existed. The concept of taxing old dead people just felt fundamentally grubby at the time and still does. There are plenty of ways to tax the living and if really necessary I’m sure we can find plenty more. So I really do hope that as a nation we can’t see our way clear to stooping to that – It just wouldn’t help me feel better about Oz generally at all. And would quite possibly serve to confirm some of my less flattering suspicions about what we have become.

  • 265 Biker Pete, Vancouver // Oct 5, 2009 at 2:59 pm

    Fair comment, Ned.

    Yes, I grew up watching the trauma of family farms lost by grieving families who not only lost their parent(s) but also lost properties they’d worked for generations. It’s the meanest, dirtiest of all taxes.

    I once posted my belief that the best position to be in was to have options… choices. It was an argument for spreading one’s assets across at least three classes, in our case property, super and cash. These might in fact be the three areas most affected by the Henry Report. I imagine a lot of Aussies have a similar spread. We’ve already seen some major shifts in capital as a result of two recent financial decisions (bank guarantees, super caps) and I suspect we’ll see more after November. Both had desirable and undesirable effects, claimed by opponents to have been unforeseen. The old Confucian curse applies here, now…

  • 266 Ned S // Oct 5, 2009 at 8:27 pm

    Yeh, what happened to “cockies” back in the 60’s was a damn nonsense Biker. Even my mob who were also using newspaper as toilet paper in those days reckoned it was a bit over the top. Probably doesn’t pay to dwell on it though! Smile.

  • 267 Biker Pete, Vancouver // Oct 6, 2009 at 1:15 am

    You had _NEWSPAPER_???!!! Luxury… ! We were forced to use handfuls of leaves and grass… . You young people don’t know what true hardship… etc… etc…. 🙁

  • 268 Ralph // Oct 6, 2009 at 1:08 pm

    Hi all,

    Been away a little, but the discussion is still booming!

    So it seems like something’s going to go down. I’m guessing there will be something to encourage property investment in Henry’s tax review. But I still maintain that Rudd won’t be in a position to come out with more brazen support for house prices in the near term. The economy is appearing to be going too well (as far as the public is concerned) to be able to justify a direct handout to keep property prices up. But he just might try it – the opposition is floundering so badly that Rudd might just imagine that he can get away with some Whitlamesque policy.

    Meanwhile, we’re in a holding pattern for a little while as the market adjusts to the unwinding first home owner’s boost. As I see it, the property market is on knife-edge – teetering on the brink and ready to go in either direction. I think that the government would be sitting back and watching all of this and trying to assess just how much they can try.

    And now we see interest rates going up. Confidence?

    But one thing is for certain, Australian residential real estate is the most protected and mollycoddled market in the world. In the US, there is moral hazard when it comes to big banks. In Australia, it’s the banks and house prices. Someone said that it’s now about trying to second guess the policymakers. Wouldn’t it be great to be a fly on the wall in parliament house right about now?

  • 269 Biker Pete, Vancouver // Oct 6, 2009 at 1:39 pm

    “Australian residential real estate is the most protected and mollycoddled market in the world.” Ralph, 276.

    It has kept rents relatively low, Ralph. I think that’s about to change: fast-growing population, rising interest rates, less construction happening. We built five homes last year… one maybe two next year, depending on changes in November. Won’t build any more if it doesn’t pay us a lot more than super or bank interest, neither of which involve any effort. 🙂

    Our son (24) is paying $675 rent per week in Montreal. Can’t imagine what Aussies will do when high rents begin to hit Aussie cities… . Maybe a ‘packed-to-the-rafters’ scenario… 30 – 45 year olds moving back home with mum and dad, perhaps with grandkids, too… . Most likely there will also be an exodus from the cities, as there was when I was young and couldn’t afford a city home; but frankly, the drift seems to be the other way; young people moving into larger centres. Jeez, the future doesn’t look too good, does it?!

  • 270 Greg Atkinson // Oct 6, 2009 at 6:40 pm

    Well we are off and running now with the RBA raising rates and the first home buyers grant being wound back. Should be interesting early next year to see how home prices are tracking!

  • 271 Ned S // Oct 6, 2009 at 8:28 pm

    Oz house prices – Yep, I was a bear – To the tune of 20% maybe. In the FHO market I dapple in. But the RBA and Kev knocked me off.

    All sounds flat to middling with inflation to eventually kick in and another crisis in 2 or 5 or 10 years time Greg … Which is much the same as saying the sun will most likely rise again tomorrow perhaps?

    A right bugger for anyone who was actually hoping for some change perhaps … But there we have it hey? Sounds boringly repetitious to me – And called stagflation. (Although the risk is a bit freaky!!!)

    Ah, toilet paper Biker! Yep, I gather that the high fibre Spinifex based brand favoured by the bushies is what truly made Aussies men of steel who did not cry easily? With the meek and mild townies who crumpled up the local rag while hidden from view, contributing a bit too.

  • 272 Biker Pete, Vancouver Island // Oct 7, 2009 at 2:38 am

    Maybe the RBA is trying to give the economy a psychological shot-in-the-arm… (?) We’re probably the only country to actually raise interest, when others still appear to be lowering it. Let’s hope it works. November could be the crux.

    Greg, watching rents rise before January could be another indicator. We don’t need to put ours up, so we won’t; but there will be investors who don’t need to who will raise them in sheer pique, I imagine. A further indicator will be the effect on construction. Another interest rate rise and we’ll just sit on our empty blocks… and leave the money in the bank and in super.
    What might reduced construction do to unemployment figures?

    Ned, I finally discovered the answer to that old rhetorical question: “Does a bear sh*t in the woods?”
    The answer is “NO, it sh*ts on every damned running and walking track in the woods…!” 😉

  • 273 Ned S // Oct 7, 2009 at 7:53 am

    Yes I seem to recall hearing there are bears on the island Biker. Along with some pretty nice property – Let me know what you think of the lakeside stuff maybe?

    I’ve never seen a Kanuk bear – Although if they anything like the squirrels I’d keep away from them – Way too much risk of catching mange!

  • 274 Greg Atkinson // Oct 7, 2009 at 3:03 pm

    Biker Pete I just hope the rates decision was not impacted at all by the desire to be the first G-20 nation to raise them..i.e. for the sake of bragging rights.

    Yes rents and construction activity will be interesting indicators to watch. It is all happening as they say 😉

  • 275 Biker Pete, Vancouver Island // Oct 7, 2009 at 3:57 pm

    Very much like squirrels, Ned… just bigger nuts!

    A small black bear scampered off a track while we were running last night. It was at least 100m away, so we never got a good look at it. Bears sometimes raid the garbage bins at night here, so our hosts (who have left for Spain for a month) have given us pretty strict instructions about how to dispose of ‘edibles’.

    I’ll check out realty here. Much of the coastline has spectacular views. A sea view is really no big deal(!) A small motel next to us is $1.2 mil, so real estate appears reasonable at first glance.

    Figure you may be right, Greg. Could just be about bragging rights. As you say, things are happening… ! 🙂

  • 276 Ned S // Oct 8, 2009 at 6:10 pm

    Sea views and all that sort of stuff – I got spoilt as a kid and figured it made your window frames and cars rust and killed the vegie garden. Which just points out the difference between investments and choosing where one really wants to live for themselves I think Biker. With sharing it with mangy black bears and sqirrel’s (or Oz possums?) probably not being much of an issue at all … 🙂

  • 277 Biker Pete, Vancouver Island // Oct 9, 2009 at 6:10 am

    G’day Ned. Funny about the stars. They definitely don’t work here.

    Gun laws are more relaxed than in Oz… no doubt about that. Friends have different handguns, including 9mm.
    Joined the gym, anyway. Half the cost of our WA gyms, with similar equipment. Decided to carry a large knife while running…. . Has to beat chucking _rocks_ at large-clawed toothy predators, anyway!!! 🙂

    We really can’t blame Keen for his stance. He saw the US and UK crash… and decided to play guru /prophet. He’s locked into that position now. I guess from a financial position, he _could_ have a proxy buy back in on his behalf… say a GF… but the critics would have a field day, if it ever got out…
    as it always does. Enough ignomy as it is… .

    Now take our mate in the UK. Says he has property… (Where?) If he believes Keen is right, he’d sell anything in Oz. My guess is that he bought into the UK property scene and prices fell. Can’t sell now; can’t buy back in Oz. Think about it… . Makes good sense, doesn’t it?! 🙂 Poor bastard… .

    Cheers, Ned!

  • 278 Ned S // Oct 9, 2009 at 11:09 am

    Keen didn’t do me any favours with his predictions Biker – One would have to assume noises like he was making were at least partially responsible for the aggressive actions taken by Rudd and the RBA. And my call was 15 to 20% drops as you know, with me being positioned to buy using cash. So I found myself in cash with lousy interest rates being paid but entry level house prices going up rather than down – Chunner, chunner! But it’s a big hard world and we all pays our money and takes our chances … 🙂

    Hopefully a couple of good things that have come from his stance are a) a recognition that our debt is a bit peaky with various smarties having a think about just what should be done about it, and b) policy makers have figured out that very large house price drops would be bad for the real economy and should be avoided – Call me a sook by all means, but I’ve never been at all comfortable with the prospect of going through Great Depression II.

    Yes, it is a very real risk in changing countries – I known more than one to get caught that way. It was actually a large part of the reason I bought a couple of properties in early 2008 – Prices in Brisbane were hot! And I was heading overseas for three months and reckoned it would be longer before I could buy of course so while I figured a correction of maybe 10% (that was pre-GFC) was quite possible, I’d hedge my bets and buy two just in case I was wrong – And sit on cash for another two just in case I was right! (Which I wasn’t.)

    Cheers to you too … And try to not trip and fall on your knife when jogging!!! Cougars … Buhhhh – Give me a nice sociable old brown snake any day. 🙂

  • 279 Biker Pete, Vancouver Island // Oct 9, 2009 at 3:00 pm

    Not sure Keen influenced the government, Ned. I really believe that it’s about employment… shoring up construction and all the associated industries it supports. Before we became _seriously_ involved in building, I had minimal knowledge of the impact a slowdown in construction would have. Labor fears the spectre of unemployment; so much in fact, that they were out around 30% in their prediction…
    I think, that with interest rates rising now, they _may_ actually get it right, unless Henry’s November decisions support the industry. We’ll certainly spend $700K less(1) than we’d anticipated next year… and, as bloggers remind me frequently, we’re very small tiddlers(!)

    We’re also getting lousy cash rates (on our super, anyway.) On the credit side, even with TTRs paying us another two tax-free incomes, we’re still making around the same amount in a half year as six months abroad is costing us. I guess our bank offsets will return 5.36% as a result of the RBA’s decision.

    As I’ve mentioned previously, we probably paid a little too much for three of our blocks blocks at the peak. I’d put that at about $45K. But we also scored the very highest rents on those properties once that raft of five houses were finished.
    Swings and roundabouts… .

    Fished the mouth of the Oyster River for coho this afternoon. The rest of my companions were wearing waders (wimps!(2) I caught two cutthroat trout, which apparently school with the big fellas and eat their eggs! No-one got a coho and both my wild trout (with intact adipose fins) were released.

    Slipped a sheathed Estwing hatchet onto my belt, in case I needed to fend off a fishing bear… !

    (1) If Henry gets it wrong, we’ll use it to build here instead.
    (2) Couldn’t get their spare waders to fit; my feet too big 🙂

  • 280 Ned S // Oct 9, 2009 at 3:05 pm

    It does make me wonder about Steve Keen – Unless he’s been through an awful lot of dry gullies he’s got to be on the wrong side of 60 I’d reckon?

    If he has a few mill stashed in some nice safe low risk super account I’ve got no real issues with his apartment selling stunt. But if not and I was a wise old mamma sorting through prospective hubbies for my little girl, I doubt I’d pick the Aussie my tarot cards said was going to be 60 and not own a home.

    If he’d gotten twitchy and flogged off an investment property I could certainly understand that. But selling your PPR which you presumably bought at some time because you reckoned it represented something close to acceptable value for money then is a biggy alright.

  • 281 Ned S // Oct 9, 2009 at 4:08 pm

    My personal suspicion is that George Bush broke the bad news to Kev Rudd in a phone call where the media fortuitously got all distracted as to whether George knew what the G20 was? With Keen’s views being a bit of confirming background noise that had been around for a while. But that’s all water under the bridge now.

    I still haven’t written off the possibility of a modest little correction Biker as the real economy is allowed to reassert itself – To a degree. But while I was pretty confident of a correction before, about all I’m confident of now is that drops of more than 20% would only be allowed to happen over the tax payer’s bled white corpse.

    Interesting to hear that you are backing off the building for a while. As I’ve said often enough, I’m just sitting until I hear the tax review report. Then I’ll make a few decisions. It could even be that I’ll look at building two. I’ve had the land since the mid nineties – I just need to get rid of an old tmber house that sits on a double block.

    Ah decisions, decisions, decisions … Yes, the old Oriental adage as you say.

    Cor, fancy having to fight a bear for a feed of fish – No wonder people migrate to Oz! And if they want to get in the water with the sharks and crocodiles then on their own heads be it. 🙂

  • 282 Biker Pete, Vancouver Island // Oct 9, 2009 at 11:26 pm

    I’m with Greg on the ‘different markets’ theory, Ned. Some will go up, others down… . Our decision to finish the current house and wait is mainly about November’s possibilities. I think this really is a time for holding. If that turns out to have been too conservative, I’ll wear it. We do have a lot of property… .
    (Sold a very old timber house once, by tender. A tradie bought it, moved it, renovated it and subsequently sold it for $420K, at the market’s peak. Not a bad move, since he only paid us $2K. It would have _cost_ me that to demolish it… .)

    I see the Aussie dollar is rising against the quid and buck. Good for us personally, while travelling, but not sure it’s all win for Oz. Canada has been panicking recently because the loonie has been doing so well against the buck. More of that to come, I think.

    Your shark & croc comparison makes sense, Ned. As a longtime diver, I was always armed. Here, it makes good sense to carry something with a bit of reach, particularly in bear and cougar country… and while the rivers are alive with salmon. Most people using the trails have a dog, which at least provides a diversion. Bears do pull down deer (which makes you think!) but bear and cougar attacks on humans are rare. A hatchet seems like a handy tool to carry in the woods, anyway… . 😉

  • 283 Ned S // Oct 10, 2009 at 9:25 am

    I’ve got no issues at all with the different markets thing Biker – Even in the US while some markets were down by 50% there was stuff that held up and even grew a bit – Least that was the storey a year or so back – I don’t especially follow their property.

    I’m having a good hard think what to do with that timber house Biker – It definitely isn’t junk as such – Too many options almost. But it is big and the cost of land to move it to is high.

    The big issue at the moment is that there is so much unashamed manipulation of markets going on worldwide (property, currency, stocks, bonds … you name it), plus jawboning, it would be a brave man who’d make any high probability calls on what will actually happen – Except to say that if the West doesn’t achieve inflation, it won’t be through the lack of desire.

    In the absence of an epiphany, your property, super and cash combination sounds like a sensible way to guard against unacceptable losses coming out the other end. While keeping a real close eye on the inflationary prospects I think?

    I’m glad you’ve got something other than a knife – I was having a few issues with the mental image of Tarzan wrestling a lion in the African jungle with a knife clenched between his teeth and trying to reconcile it with a potential Biker, Canadian forest, cougar equivalent … 🙂

  • 284 Biker Pete, Vancouver Island // Oct 10, 2009 at 11:30 am

    Perhaps it’s worth getting an appraisal from an engineer, Ned. It’s possible you have options with that house you haven’t considered. I have to call in some expertise when I get back… . A major subdivision has just been approved on two of our main property boundaries, giving us the same option(s).

    Yes, our asset mix is pretty sound, I think. Two classes allow swift transfer… and the third promises fortnightly dividends, without the need to ever sell. Inflation? I think it’s inevitable, except in technology. As someone else has noted, virtually all forms have become cheaper, relative to income, over time. We expect to see the steady, relentless erosion of our dollars’ value over time… and accept this as a given.

    Looking into lithium at present, in both its forms. I need to do due diligence before we move, but it’s likely we may commit some funds. Now, if one could find thorium adjacent lithium!

    Large toothy beasts? Can you imagine just standing there, throwing pebbles and shouting at a bear or cougar, as the local papers suggest one should? Give me a sharp hatchet every time! 🙂

  • 285 Ned S // Oct 10, 2009 at 2:52 pm

    Timber house – Amongst many other thoughts, the possibility of raising it, putting a chainsaw through the middle with a concrete block wall to seperate the two bits and building in underneath has occurred to me – I like houses and would rather not demolish perfectly sound and even vaguely attractive old ones if avoidable. Which is a weakness when it comes to making money. Yes, it would be best to get some advice – I am out of my depth on this one I think. (Unless I can find a suitable and cost effective block of land for removal – And they are like the proverbial hen’s teeth.)

    I’ll have a read up on Lithium.

    Personal protection – I was out shopping with a mate a while back (a Brit in Russia) and he was dead keen on getting a baseball bat – Seemed strange – Neither Brits nor Russians are big on baseball of course. On enquiring further it seems his plan was to drill some holes in the fat end and glue in some nails with the pointy bits facing out – And Yes, he was a footy hooligan in his younger days. But a currency trader in the US and Japan plus some sort of financial thingy back home. I laughed at him and said Geez mate, that’s a mace! He tamed it down a bit and settled for putting some screws in the fat end with the blunt ends pointing out. Then went through with his plan of waiting quietly for a few nights inside a partially constructed property he was unhappy about things vanishing from after dark (Insurance works rather differently over there I suspect?) – He had a chat with the nocturnal visitors and they saw it his way and decided to not come back. The world is a fascinating place Biker – One has to be willing to try and adapt I think?

  • 286 Biker Pete, Vancouver Island // Oct 11, 2009 at 12:11 am

    Ned, in the absence of a suitable block, I think I’d wait it out.
    I take it the house is rented out?

    Enjoyed the urban jungle analogy! 🙂

  • 287 Ned S // Oct 12, 2009 at 7:57 am

    I won’t make any decision on the timber house before March I think Biker. And yep, it’s rented out alright – I like income! 🙂

    Thinking about it a bit more, I suspect the urban jungle analogy illustrates the advantages of operating in a culture and legal system and tax regime etc, etc, etc that one is reasonably familiar with as opposed to dabbling offshore.

    Interesting though … One of my thoughts on the bit of Russia I was in was that with the changes that had gone on over there they were just maybe starting to move into a suburbanization phase. With more people having cars plus considerably more cash than in the past maybe? Long term, their demograhics aren’t good though with a declining population.

  • 288 Biker Pete, Vancouver Island // Oct 12, 2009 at 2:39 pm

    We’re constantly weighing it all up, Ned. With the majority of my wife’s family in Canada… and one of our two sons now living here, we can see advantages investing here, particularly if November turns sour. It’s likely our other son will move north once his doctorate is completed later this year, anyway.

    We’ve planned to visit northern and eastern Europe within two years. Your visit sounds like quite an experience!~

  • 289 Ned S // Oct 12, 2009 at 7:27 pm

    BC is a nice bit of the world Biker – It isn’t easy to leave home of course. But in a lot of ways home is where the family is to my way of thinking. With family (in that regard) being one’s parents and kids.

    And Yes, if our policy makers get any sillier than they are, it certainly could make making a difficult decision easier. (Even though I’m in no rush to leave Oz! Damn! Damn!! Damn!!!)

    But providing one has fiddled things so they can see their way clear to come home should that really sound best as things change (which they always do) then you’ve probably done the best for all concerned I think … If that that ramble makes any sense?

  • 290 Greg Atkinson // Oct 21, 2009 at 5:22 pm

    Of course our view of housing may change if the Government decides to tweak the tax system. I wonder how people would react to capital gains on the family home becoming taxable?

  • 291 Ned S // Oct 21, 2009 at 6:50 pm

    I doubt that Henry will discuss that one mate – Except to say why he didn’t recommend it if he is brave enough to broach the topic at all? Could be a different kettle of fish in the 2035 tax review perhaps … But that’s a bit long term for me right now. We’ll see though – Never say never! 🙂

  • 292 Ralph // Oct 22, 2009 at 7:54 am

    I agree with Ned. It would be a ‘courageous’ move to tax capital gains on the family home. And courage is something in short supply amongst our bureaucrats and politicians.

    I do think there will be something for property investment in the tax review though. Real estate speculation is a key Australian industry that needs to be supported.

  • 293 Ned S // Oct 22, 2009 at 2:04 pm

    It will be an interesting one Ralph – The tradeoff with that sort of stuff has to be allowing people to claim a tax deduction on their mortage payments on their homes of course. So it is quite feasible that it could push house prices significantly higher again – Ouch! And I don’t get the feeling that is what they really want to encourage right now – We will see soon enough though. Cheers!

  • 294 Greg Atkinson // Nov 3, 2009 at 8:49 pm

    Well interest rates went up again this month and the first home buyers handout is being scaled back so next year will be interesting at least as house prices are concerned. I wonder if Australia has managed to create a mini-property bubble due to the meddling of the RBA and Government?

  • 295 Pete // Nov 3, 2009 at 11:18 pm

    I wonder if Australia has managed to create a mini-property bubble due to the meddling of the RBA and Government?

    Ha ha ha?

    I don’t get it?

  • 296 Ralph // Nov 4, 2009 at 12:23 pm

    It certainly is going to be interesting.

    The funny thing is that prices still seem to be booming despite the handout being wound back and interest rates being ramped up. If anecdotes about banks tightening credit are true, this suggests that credit overall should be getting tighter. But it doesn’t seem to be putting much downward pressure on house prices. Where is the extra money coming from to keep bidding up prices? Perhaps it’s just irrational exhuberance and a feeling that Aussie real estate really is the magic pudding. Maybe Biker Pete was right after all.

    I reckon the clock must be ticking for the gov’t to announce their next housing-related stimulus. This bubble is so big that they can’t let it go now – they’ve gotta go ‘all in’. Their electoral fortunes depend on it.

  • 297 Ned S // Nov 4, 2009 at 1:40 pm

    What has really changed since a year ago when people were moaning about the costs of housing but still paying their mortgages regardless?

    * Prices have gone up a bit.
    * And people feel more confident buying in rising markets rather than falling ones.
    * Interest rates have gone down a lot – And while that trend is now up, there is no guarantee at all that they’ll go back to 7% or more anytime soon. (The RBA said a while back they’d like to get them up to about the 5% [or 6% ?] level over a couple of years).
    * Unemployment of 6.75% is forecast now rather than 8.5%
    * People are pretty confident government will act to prevent a major property crash in Oz.

    Presumably there has to be some sort of trigger for a crash? And at this point most people probably aren’t especially seeing one. Plus feel that government will protect them against any particularly big and particulary nasty surprise shock/s anyway.

  • 298 Pete // Nov 4, 2009 at 1:54 pm

    Ralph I am beginning to question Australia’s property data sources.

    Think about who we get the info from and what they have to gain from property prices going up or down?

    It’s all up.

    That’s not to say that it is completely wrong – it may not be. But I don’t think we should accept their ‘statistics’ as fact.

    That said, with any luck house prices will double from here in the next 10 years, whilst wages will increase only 30%.

    All that means is that (hypothetically):
    – the median wage would be about $80K or so
    – the average house price in Sydney would be over $1million
    – the deposit requirement would be at least 10% or $100K
    – the interest-only repayments alone would be 7% or $70K (an ultra conservative estimate)

    Obviously that person won’t have enough money to pay for it by themselves (or even enough to pay their tax) so his partner (who takes home the same wage) will:
    – remain childless because she cant afford child care, or have a child and no money at all
    – pay for all of the household bills, including rates and home maintenance
    – will have to pay the mortgage principle component (say $20K a year? Thats only about a 40 year mortgage)
    – will have to pay for all the living costs of the family, including food, fuel, clothing, luxury items

    And will have virtually nothing left over.

    For the good part of 25 years of a 40 year mortgage.

    That isn’t living. Not being able to afford children unless you are ‘rich’ is not living.

    What then? The bogans living in Gov. housing will have huge tribes of children, the middle-class will have little or no children and poverty, and the upper-class will have whatever they like.

    For some reason that reminds me of the past. The very distant past. Perhaps I should shine-up my armour for any upcoming jousting tournaments.

    Now…let’s imagine that houses doubled yet again on top of those, whilst wages did not keep up. You’d need 4 adults per house just to live. But that isn’t exactly conducive to a housing shortage is it – more people per dwelling.

    Okay, i’m almost at the end of my rant. I simply think that ludicrously and unjustifiably high property prices are not sustainable, and are even worse foundations for growth. This does not mean that growth won’t happen, however it does mean that any growth is a product of an irrational market. Irrational markets revert to the mean over time – however they can stay irrational for a lot longer than people like myself might suspect.

    It is all too easy to join the mainstream consensus and because going against it doesn’t “feel right”. But the mainstream consensus is wrong more times than it is right. Individuals can be quite stupid, but groups take it to the next level.

  • 299 Pete // Nov 4, 2009 at 2:03 pm

    Almost sounds like you trust the Gov. there Ned.

    Have things changed that much? Now we’re trusting what the Gov. says and forecasts?

    They certainly don’t make me feel warm and fuzzy. Not when I read about them intentionally deceiving us over and over again.

    Each to his own I guess.

  • 300 Anon // Nov 4, 2009 at 2:05 pm

    “Ralph I am beginning to question Australia’s property data sources.”

    I’m starting to give up on any official data sources ! They should put warnings on all of them. **Maybe distorted to seem better than it is**

  • 301 Anon // Nov 4, 2009 at 2:14 pm

    The problem with the housing bubble is if prices go down how does this align with everyones theory of rampant inflation.
    If inflation rockets real assets like houses will rocket too. Look at the basket case Zimbabwe and real estate prices.
    Check to see how real estate has historically performed in high inflationary environments — it has done quite well in these environments (even outperforming equities).
    Perhaps Greg maybe right and we only have a slight correction. But as Ralph mentioned if the government doesn’t prop up housing its basically an election death sentence.
    This is why its difficult to invest when there is too much Government intervention — they are a rogue element !
    Anyways just listing the bull cases for property prices. I personally would never buy a house at these levels and I suffer hyperventilation when I look at the sale price.

  • 302 Ralph // Nov 4, 2009 at 2:20 pm

    Pete – all good points.

    You can’t escape the conclusion that if house prices and wages keep rising at current rates, there’ll be a massive divergence. I can definitely imagine the median house price cracking $1m before wages break the $100k barrier.

    I can also see people devoting increasingly larger amounts of their net income to housing. It probably won’t be uncommon for people to spend 60-70% of their income on rent and/or mortgage repayments. It will just become the accepted thing to do. Prices might keep increasing to a point where home ownership is out of reach for the majority of the population.

    It then genuinely becomes a social issue – we’ll have to see the development of shanty towns. Just like there is in Mumbai or Rio. Where else will the poor live? We’ll have to see if the government of the day is comfortable with that sort of situation. If they are, house prices to the moon!

    Ned – unfortunately, I think you may be right. Pretty much everyone expects a government bailout when the $hit really hits the fan. The precedent has been set. The banks know it’s there. And the public will vote the government out if the cash handouts and subsidies don’t come. I’m just waiting for the day when the PM or treasurer comes out and says that the bailout is needed to stop house prices from falling.

  • 303 Ned S // Nov 4, 2009 at 2:42 pm

    Are you telling me that you don’t think Krudd would act to mitigate a crash Pete? (Which doesn’t have that much to with “trust” as such – More just a case of pigs do what pigs do and butterflies do what butterflies do.)

  • 304 Greg Atkinson // Nov 4, 2009 at 2:55 pm

    I have given up applying any logic to what is happening. I honestly did not expect the housing market to get a boost via the home buyers grant and if you had said to me in mid 2008 that the Government would respond to a financial crisis by encouraging people to take on debt (i.e. home loans) I would not have believed you!

    So what could the Government do next year when faced with an election? Anything to get re-elected I would guess 🙂

  • 305 Ned S // Nov 4, 2009 at 3:01 pm

    Yes, there’s some “moral hazard” issues about at the moment Ralph. But I’m wondering to what extent government intervention should be factored in as part of the new normal in investing. Rudd certainly seems to reckon intervention has an essential place in it all.

  • 306 Ralph // Nov 4, 2009 at 3:39 pm

    Ned, that’s what’s so worrying about this. In choosing where to put your money, you have to try to second-guess government policy moves – probably more so than in the past. And lately, they’ve been cancelling handouts all over the place.

    Take a look at solar panels and pink batts. Solar panel companies were given a day’s notice that the rebate would be culled. Similarly for the dodgy johnny-come-lately pink batts installers – given a day or so’s notice that the handout would be reduced from $1600 to $1200. Businesses had made decisions in the expectation that those programs would run to their conclusion. At the very least, the government had not given an indication that the rug was about to be pulled.

    Now before any of you call me a socialist, I don’t for a second believe that businesses that rely on government handouts are sustainable. Nor should they expect subsidies to continue ad infinitum. But it just goes to show how arbitrary it all is.

    Further, the fact that the first home buyers’ boost is still going strong speaks volumes for the government’s intentions. While other elements of the economy can be sacrificed, house prices are sacrosanct. Even the schools cash splash has been wound back a fraction. Perhaps they are making some room in the budget to put some more money into real estate? The FHOG would be probably the only stimulus that is immune from tweaking (unless you call an increase a tweak).

  • 307 Pete // Nov 4, 2009 at 10:28 pm

    Anon:

    If inflation rockets real assets like houses will rocket too. Look at the basket case Zimbabwe and real estate prices.
    Check to see how real estate has historically performed in high inflationary environments — it has done quite well in these environments (even outperforming equities).

    Yes indeed. The factor that makes this ‘different’ is debt. Simply, high inflation = high interest rates. In fact, ludicrously high interest rates. No-one will be able to afford the interest payments to keep the bubble afloat.

    However, people who own their own home have a huge advantage.

    Now just need to ask ourselves, is our property bubble fueled by debt or people who ‘own’ the houses? If you ask me, i’d say most of them don’t technically own their houses at all – the banks do.

  • 308 Pete // Nov 4, 2009 at 10:40 pm

    Ralph:

    I think you might have missed my sarcasm in my previous post. The sarcastic bit was me suggesting house prices doubling from here (apologies for my low form of wit).
    The median DINK (double income no kids) wage would not even be able to afford to live in the median house if they doubled.

    Who is going to buy the houses in that case? No-one would want to. Plus you shouldn’t need to be a DINK household to afford a home – many people are not.

    Ned:

    Are you telling me that you don’t think Krudd would act to mitigate a crash Pete?

    Touche! 🙂

    I don’t think Rudd can mitigage a decline in the ‘growth’ (in real terms) of the property bubble over time. Now, I am keen to emphasise “real terms” and “over time”, because he may be able to prolong the bubble. All he’d need to do is introduce the FHOG again, this time with 50K bonuses and people would be all over it.

    But…the more he tries to keep them up, the more he is taking away from the rest of the economy to support a bubble. It is sustainable in the short-term. It is not sustainable in the long-term. All it would take is a significant shock to our economy to bring things to ‘crisis levels’ again. How about a global shock that significantly reduces global credit availability? How would he fund stimulus then?

    Property bubble expects infinite growth – with finite (debt-fueled) capital.

    Plus, I don’t think we should pretend that the Gov. really has a clue as to what they are doing at any given point. They have proven themselves to be economically illiterate and political deceptive.

  • 309 Pete // Nov 4, 2009 at 10:48 pm

    Ralph:

    Even the schools cash splash has been wound back a fraction. Perhaps they are making some room in the budget to put some more money into real estate?

    My ‘guess’ is that the Gov wants to be able to say that all their calculations or ‘forecasts’ in the budget were actually better than predicted.

    That will be an avenue for them to say that the stimulus ‘worked’. Even though it is just less spending that intended.

    They realise that the Liberal Party is continually going on about debt. So it wouldn’t surprise me if the Gov wanted to punish them for it a bit by reducing it (in the short-term).

    Kinda makes an election easy if you can say that everything you did was good (“look at the figures”) and everything the Opposition said was wrong (“look at the figures”).

    Even if it is horse crap.

    Election may be coming soon if the ETS doesn’t pass in December? (double disolution)

    And their strategy may be less of a “keep people happy” strategy than a “but we’re nowhere near as bad as those guys!” strategy.

    Personally I hate that I voted for Rudd, but I hated Howard more. Lesser of two evils? I wouldn’t vote for Hockey, and voting for Turnbull seems a bit strange. But I won’t vote for Rudd again.

    Sorry for the triple post guys!

  • 310 Ned S // Nov 5, 2009 at 9:27 am

    I guess when it boils right down to it, Rudd seems to reckon that Aussie house prices are fundamental to the health of the banks Ralph? So given that he has no desire to be bailing out banks, he’s stuck with ensuring house prices don’t crash. (Where “don’t crash” isn’t necessarily the same as being a “great investment” of course – But in these uncertain times, I can see the attraction in being crash protected. 🙂 )

    So that is one point. But the other (and possibly more important one I was trying to make) is that housing would seem to me to be much more affordable than it was when interest rates were much higher. The market has been reset to something like 2004 levels of affordability perhaps?

    Pete, you say it is not sustainable. Well all I can say to that is that Rudd seems to reckon it is his job to ensure it is sustained – He isn’t a big believer in letting “free markets” do their thing (unless that thing happens to be what he wants) as you’ve also obviously observed. And he would roll around on the floor laughing at any suggestion that Australia might be a “better place” if he didn’t do such things. As would the RBA and Treasury.

    They exist to direct and control and to intervene and manipulate (and extract taxes) for the greater good as required, is their take on things. And the GFC has very strongly reinforced that view of their roles in their minds.

    So that fundamental shift in emphasis and willingness to actively involve themselves in markets on the part of policy makers has to be factored into investment decisions very heavily nowadays – It was always extremely important of course. But now it is even more so. Which makes the outcomes of something like Henry’s review even more important nowadays than it may have been in the past. Rock on Chrissy – I can’t wait to see what pressies Uncle Ken has put in my stocking. 🙂

  • 311 Ralph // Nov 5, 2009 at 11:21 am

    Yeah, I’m not voting for Rudd either. He’s a major disappointment. If push comes to shove, I reckon Turnbull, Hockey & co would continue with real estate bailouts. They’re in this game up to their eyeballs as well. They’d just sacrifice other stimulus measures. So we’d have no new school halls and no pink batts, but we would have a booming real estate bubble.

    I also think that Rudd will call an early election. I can’t see the ETS getting up (and rightly so in its current form). But of course the real risk for Rudd is that the economy starts to tank as the stimulus wears down, including house prices coming off the boil. I reckon he can’t credibly announce new stimulus at the moment because everyone thinks we’re back to boom times. He’d make Whitlam look like a miser and the coalition would have him for breakfast. And he knows he can’t survive a house price crash. What a bind to be in! So he has to call the election before the $hit hits the fan. This is what he’s really worried about – the ETS is just propoganda.

    Poor Rudd – he showed such promise but will end up being seen as a very ineffectual PM with absolutely no courage.

  • 312 Ralph // Nov 5, 2009 at 11:29 am

    Ned – good thoughts. It certainly will be interesting to see if Rudd comes bearing gifts this Chrissy. Gee, I hope not. But I suspect that he might not be able to help himself.

    Overall, I think Pete’s right in that the real estate bubble is unsustainable in its fundamentals. What we don’t know is Rudd’s level of desperation and/or stupidity. If he’s as desperate and stupid as I think he is, I think we’ll see him try to keep the bubble going until he can get re-elected. What other choice does he have?

    At the moment, we could be looking at a slim Christmas for the retailers, based on underlying desire to deleverage, stimulus wearing off and higher interest rates. Alternatively, if Oz racks up the credit cards again for a big Christmas spend (please, yes please!), retail might fall in a heap right after Christmas. So Rudd could stimulate going into Christmas or he could save the world with a bailout in the new year.

    Did anyone mention moral hazard? They should name a horse ‘moral hazard’ and enter it in the 2010 Melbourne Cup – would be an unbackable favourite. The TAB would have to suspend betting!

  • 313 Ralph // Nov 5, 2009 at 11:32 am

    By the way, check out the number of posts for this thread – currenly 322! I came late to it, but this is a cracker! And it’s been a great discussion too. You must be proud, Greg!

  • 314 Ned S // Nov 5, 2009 at 12:56 pm

    I think it goes deeper than simple politics and the desire to be re-elected Ralph. In that a significant correction in actual house prices (more than 20% maybe? – I don’t know the “magic number” but would certainly hope policy makers have been diligent enough to take some steps to find out by now???) would put the banks at risk and that cannot be allowed to happen.

    Bank failures are very, very bad news of course. With the tax payer getting to bail out the banks aka the UK and US. Way better to not let the rot get into the banks in the first place. So keep housing ticking along.

    With my second point being that so far they have done that successfully – A little too successfully for their own liking even? But bank failures simply could not be risked and at the time the RBA crashed interest rates and Rudd upped the FHOG and the States came on board with slashing stamp duties for FHBs they had no idea what they were facing except it looked like being VERY nasty.

    Although if an individual’s major focus is the fact that house prices are way higher than they can or wish to pay, then it easy to lose sight of the fact policy makers are playing a way bigger game in which house prices are only one element (albeit a very important one.)

    As to Chrissy pressies – I’m thinking in terms of suggestions “Uncle” Ken Henry might have for us. With Rudd OK’ing a few of them soon. And some of them being more the “trick” than “treat” variety just maybe as well! But it still helps give investors some direction. There is a super review being carried out as well. And that’s of significant interest to me too.

    10 year plan hey Greg? Some of it could be way longer if the last one is anything to judge by. But my interest levels are high!

  • 315 Ralph // Nov 5, 2009 at 1:36 pm

    That’s true, Ned. No question that a true property crash would have been catastrophic. But I would argue that if people are prepared to take risks and profit in the boom times, they should also be prepared to take the hits in the downturns. But apparently that ain’t so anymore.

    The consequence is that the government has now designated an asset class that is a rolled gold protected species because the entire economy has become so heavily dependent on lending for real estate purchases. Is that the fault of government? Partly, because they’ve encouraged real estate speculation through favourable tax treatment for real estate purchase and investment. It’s a factor of the free market, so we can’t quibble too much, but then again, the government has shaped the market such that this was the inevitable outcome.

    That doesn’t mean that investors in real estate are guarranteed windfall profits. But it does seem to mean that they are guarranteed not to take anything more than a very minor loss. You could make more money investing in gold, shares, whatever. But uninformed mum & dad investors who are told and believe that property only ever goes up would be given a secure haven to store their ‘wealth’. Perhaps.

    I accept the situation, but I think it’s a disgraceful situation. If this is the way it’s going to be, I just wish they would come out and publicly state the rules of the game rather than pretending to dance around it.

  • 316 Ned S // Nov 5, 2009 at 2:44 pm

    That is the other major question one has to ask themselves now Ralph – To what extent is the change in the way things are done, part of the new investment normal. And I think we’ve got our answer.

    The stock markets aren’t reflecting it right now – Largely because the Americans are giving their banks every opportunity to trade themselves out of insolvency I think. (It’s really about the banks there too.) But the effects will be felt in those markets in time.

    Might be time to stop focussing so much on supposed “free markets” and thinking more in terms of what governments want us investing in and why – Which again is what will make Ken Henry’s report so potentially informative. I hope?

  • 317 Greg Atkinson // Nov 5, 2009 at 5:38 pm

    By the way Steve Keen has written an article for http://www.businessspectator.com.au conceding his house price prediction was wrong and he will be walking to Kosciusko. But like all economists who seek the limelight he says it is not his fault.

    Yes it is Steve..we live in the real world not one driven by spreadsheets alone.

  • 318 Pete // Nov 5, 2009 at 6:32 pm

    Guys:
    For a Government so concerned about increasing payments to pensioners and retirees, you sure put a lot of faith in them being able to give tens of thousands of dollars worth of stimulus payments to mortgagees over the years.

    You all sing the same tune – “the Gov. is all powerful and has guaranteed house prices”.

    Do you think the USA wanted their house prices to fall? The UK? Anywhere? They tried. If it only costs a few dollars to support the bubble then i’d have much more faith. The reality is that it will cost the economy.

    And the Libs will get some more use out of their debt truck.

    Second-guessing the Government and the actions of Mr Rudd – in contrast to considering the fundamentals of economics – seems like a gamble to me. But each to their own.

    And on that note I won’t be posting here for a little while. I said what I wanted to say, and tried to be helpful and provide an alternate view to the bullishness. Time for time to do its work.

  • 319 Senator13 // Nov 5, 2009 at 6:46 pm

    Greg: That is actually a pretty lame excuse when you read that Keen article.

    He writes as if it is so obvious that the FHB’s were the reason. If it was so obvious he should have been able to predict it being the case.

    Just throwing up some observations. Please let me know if I have misread something or am way off the point…

    I don’t know if this figure is correct, but he states 171,000 people received the grant. Now in the grand scheme of things that number sounds pretty small to me. That is just a few suburbs worth of people… Out of an entire nation, for FHB’s to be the driving force behind the move I would have thought that number would need to be a lot larger? But I don’t know… It just seems on the low side to me…

    Also, as stated in the article, an 8% increase in house prices is not all that much I don’t feel either. Even an 8% decrease I would still be saying that is not much of a decline (and I expected around negative 10% in the current environment). When comparing to the double figure returns on the sharemarket 8% seems pretty tame… I’m not saying that it is sustainable, just that it is not a super high increase. On that note, I would love 8% increase per year!

    A few people have made some comments about the changing investing environment. These days, not only do we have to analyse any actual investment, we also seem to have to second guess what the Government is going to do and if it is going to pull the rug out from under us. Now to me this feels more dangerous then what we had before. Maybe it is just me… But it does feel like the Government thinks it is ok to change the rules and where the goal posts are with zero notice… Makes things harder that is for sure.

  • 320 Ned S // Nov 5, 2009 at 7:03 pm

    Pete – Do you you want to be correct? Or do you want to know what IS correct? Your call of course … ???

  • 321 Greg Atkinson // Nov 5, 2009 at 7:05 pm

    Senator his excuse was lame I agree. If you set yourself up as a self proclaimed economic expert then you look like a complete dill if you don’t take into account governments at all level influence the housing market. Time for Steve keen to get some real life experience on how the economy works because the answers don’t lie in spreadsheets alone.

    I guess the people that purchased his inner city apartment are happy 🙂

  • 322 Ned S // Nov 5, 2009 at 7:24 pm

    Anyway Biker, given that I held my property (bit nerve jaggling back last November wasn’t it?) – Lots would say I was “lucky” – YES I WAS! But one has to invest in something and I kind of like stuff I can see and touch and jump up and down on – Plus renovate and improve and develop. Each to their own as it’s been said before.

  • 323 Anthony // Nov 20, 2009 at 9:42 pm

    Hey all, great debate. I enjoy reading both sides – I’ve learnt a lot reading these posts. It’s been a while for me (I made comments in post #20). As follow up FYI I made my decision and have since sold my unit. For me I am sleeping better!

  • 324 Greg Atkinson // Jan 7, 2010 at 3:04 pm

    Anthony I actually sold my apartment in November as well mainly because I am here in Japan now. I do wonder though how higher interest rates will affect the market in 2010. Can the housing market keep heading upwards?

  • 325 Stillgotshoeson // Aug 25, 2011 at 11:13 am

    Greg Atkinson // Nov 5, 2009 at 5:38 pm

    By the way Steve Keen has written an article for http://www.businessspectator.com.au conceding his house price prediction was wrong and he will be walking to Kosciusko. But like all economists who seek the limelight he says it is not his fault.

    Yes it is Steve..we live in the real world not one driven by spreadsheets alone.

    The bet was in two parts, 20% within 2 years, 40% within 10.. The 2 years ended up being incorrect, biggest reason was the FHBG..

    Whilst I do not have an opinion on whether Keen will be correct on the second part.. I would not be so eager to dismiss his comment as the ramblings of a fool.. He could well turn out to be right, or even conservative in his original “bet”. I vaguely recall a mention of him since saying that it will be higher than the 40% he first envisaged.. Might be wrong on that.. I browse through the occasional Keen article in the papers but do not follow him on his blog…

  • 326 Qld House Prices // Aug 26, 2011 at 8:05 pm

    We are keeping a very sharp eye on Queensland property market. We will update our house price reports as often as possible.

  • 327 Biker // Aug 27, 2011 at 6:32 am

    Worth remembering that Keen’s ramblings included predictions of 0% for Oz interest rates and 10% unemployment.

    Like other punters’ predictions, even for 2011, these punts have proven wildly speculative and incorrect. 😉

    Biker, Statendam

  • 328 Ned S // Aug 27, 2011 at 6:31 pm

    http://www.propertyobserver.com.au/queensland/rba-s-glenn-stevens-pinpoints-queensland-s-imperfections/2011061550498

  • 329 o'leary // Dec 30, 2011 at 2:08 pm

    It never friggin stops does it.

    The media doing whatever it can
    to distort the truth.

    Quoting private firm saying House values,
    have wait for it,
    increased in 2011.

    http://www.theage.com.au/business/property/home-values-rise-for-first-time-in-2011-20111230-1pf28.html
    (with no comments to rebuke how
    convenient! )

    But go look at The State Revenue Office data
    (each State has its equivalent).

    The actual sales result for each settled property
    settlement is there shown.

    This takes normally 3 to 6 months to show. They’re shocking truths.

    So, any figures relied upon are just that,
    unreliable and out-of-date.

  • 330 Greg Atkinson // Dec 30, 2011 at 4:27 pm

    Interesting that a property guru can take a 0.1% rise and turn it into a positive trend for 2012. Sometimes the property bulls are just as bad as the property bears at making bizarre statements. I would say a 0.1% or 0.3% rise or fall means very little.

  • 331 Stillgotshoeson // Dec 30, 2011 at 4:34 pm

    Greg Atkinson // Dec 30, 2011 at 4:27 pm

    I would say a 0.1% or 0.3% rise or fall means very little.

    Good chance I will be in Japan (Tokyo) in April Greg… Might have to have a beer with you…

    Statistical noise. Q on Q and Y on Y figures give a better scope of what is happening.

    Property is a different beast to track

  • 332 Greg Atkinson // Oct 8, 2012 at 9:58 am

    Here is a bearish view of property prices in Australia given some media exposure recently:

    “AUSTRALIAN house prices are likely to tumble in the next two years, potentially plunging 20 per cent, an analyst at a global investment bank says.”

    Source: Property prices to hit the mat (Herald Sun)

    I suspect if the downturn in China becomes particularly nasty this analysts might be proven correct?

  • 333 Frank // Oct 8, 2012 at 11:13 am

    Bearsh!t Greg, Pure Bearsh!t.

    First and foremost China will not become “particularly nasty”, thier government will simply not allow any period of negative growth as anyone who has ever been there will tell you. The westernisation of the country would be less than 1% complete.

    The Australian Property market quite simply does not have 10% of falls in it, supply and demand will ensure that. I would expect 3 very simple things to occur in the next 3 years:

    1) The people who paid $20m+ for their Hedges Avenue mansion will either hold tight or exit at a significant loss. I mean by that, that the $2.5m plus market in all capital cities has the greatest capacity to fall but limited impact on Medians

    2) Developments in outlying suburbs will see price falls and so they should. In Perth I am still astounded that people will pay $700k to live in Mindarie or Honeywood or Attwell when established houses in higher quality central suburbs are available cheaper

    3) Emergence of FHB’s and investors taking advantage of low interest rates, and 2HB’s doing the same but with significant equity will drive up demand in the $500k – $800k market and drive prices up accordingly. This will have a positive impact on median pricing

    The combination of these dynamics will see pricing at worst stable, and at best up by 3% – 5%. Remember a reduction in global consumer confidence will see further i/r reductions in this country and put a floor under any crash that people like Not Fooled keep praying for.

  • 334 Greg Atkinson // Oct 8, 2012 at 11:32 am

    Well Frank I have been to China several times (as there earlier this year) live not that far away from it in fact and reckon anyone that thinks that the Chinese authorities have some magic levers which they can use to control the economy doesn’t quite understand how command economies work.

    But I have covered all this before in such posts as: The China property bubble and an economy hooked on growth.

    Of course back then people got hot under the collar when I even dared to suggest growth would cool in China and that prices for iron ore & cola would fall.

    But back to the property market. I see no reason why housing in Australia is somehow immune from a 10% fall which I wouldn’t exactly call a crash but rather a correction.

    Perhaps low interest rates will help prop up prices but I wonder how keen investors will be to take on debt if they believe the economy is heading into a rough patch?

  • 335 Frank // Oct 8, 2012 at 2:14 pm

    Greg the Chinese Government dont need “magic levers” at the moment, they have plenty of “natural levers” instead, such as internal and external demand, population growth and urbanisation. When you visit cities such as Beijing, Shanghai or Tianjin regularly, two of which nearly have more permanent residents than all of Australia combined you see that catering for internal demand alone will not see this country grind to a halt

    You have to remember that if Chinas growth slowed to 1% in 2012/13 then they will still consume areound 50% more than they did in 2007/2008. And their growth will not slow to 1%…!

    Iron Ore prices at $180/t were artifically high and never going to last, at a more normal $120/t all miners will continue to make significant profits. They are not going to stop blasting rock, or employing people

    Do not ignore the importance of the Oil & Gas segments as fuel for Australian growth or stability in the coming 5 years with massive projects in WA, NT & QLD

    In fact the only thing that could materially damage the Australian housing market at the moment would be a return of our inept, high taxing, wasteful spending incumbent government for another 3 years. Despite their significant mismanagement of the business that is Australia none of the collapses that all-the-bears-out-there continue to bleat about have eventuated

    I think that the wider Australian Property Market is “immune” to a 10% fall off the back of no market fundamental to suggest that it is over priced in the main by 10%. Sure pockets, sectors, towns or suburbs may suffer these 10% corrections, or in the case of a suburb like Mindarie in WA 20% is not out of the realms of possibility, but you can not keep the prime real estate locations of the country subdued or declining for a decade.

    I think most investors see the rough patch in property coming to an end. It is the rough patch in shares that is of most concern.

  • 336 Stillgotshoeson // Oct 8, 2012 at 2:56 pm

    http://www.theage.com.au/business/world-business/world-bank-cuts-chinese-growth-outlook-20121008-278m5.html

    http://www.theage.com.au/business/jobs-outlook-worsens-as-mining-states-suffer-20121008-278bk.html

    Well these two articles point to things not being as good in China/Asia as some would like to believe.

    There may be no crash, but real estate in Australia could easily be subdued for the next decade..

  • 337 BP // Oct 8, 2012 at 7:42 pm

    Frank, those who attempt to tell us what will happen during the next decade get it _totally_ wrong when attempting to forecast even one year hence. Remember that 2012 was the year it was all going to ‘fall over’. Ask for an exact quote if you’d like to hear what my mate Shoes said would befall us this year!~ 😀

    Mine dew, we agree it’s difficult to predict events, even in the short term. We never anticipated the rents we’re now getting… or the return of the l-o-n-g rental queues for rentals we’ve listed 20%+ higher this year… or the prospect of declining 25 applications before we accepted the 26th, recently. And some owners are asking $100+ more per week than we are, for smaller, less-well located/appointed homes!! (Just call me Saint Biker! 😉 )

    Nor does anyone know what effect(s) the looming retirement of millions of Baby Boomers will have on our economy, particularly in relation to property. Yes, there’s plenty of guessing, but it’s primitive, at best. Invariably it forgets to factor in that many BBs stand to inherit millions of dollars when the baton changes hands. Will these folk buy into a volatile share market, a PM which sinks faster than a lead weight, Super returning 3.8% pa, or the fortnightly virtually tax-free dividends of property? Some will tell you they’ll make a killing in shares, but if you look back over their last ten months’ reports you’ll find they’re not only behind, but even bank interest _eclipses_ their ‘expertise’. 🙂

    Aussies don’t ‘need’ gold or silver, nor do they ‘need’ shares, but they’ll continue to _need_ shelter, which state and federal governments can’t/won’t supply in sufficient quantity/quality.

    We’re on a winner, Frank!~ 😀

  • 338 ed // Nov 20, 2015 at 3:52 pm

    its a disgrace that the people really buying residential realestate are those cashed up tax avoiders who are getting 5% returns instead of the 0% they would be getting on their millions in a bank. Meanwhile hard working tax payers are forced to pay ever inceasing rents ensuring that they will never be a hinderance to these real estate greedy monsters that are strangling the finite residential market. In a fair society there would be no investment in established housing and then the pricing would be realistic and above all fair. if things continue this way then the only group able to buy will be foreign criminals. at least there will be some sport in seeing the local big fish chucked out of the pond!

  • 339 Biker // Nov 21, 2015 at 1:47 pm

    Three years have passed since we attempted to foresee what might happen to Australian housing. Most of us have accepted that housing is subject to fluctuation, even without the Utopia of ‘realistic.. fair…pricing.” We travel a lot, but still haven’t come across that phenomenon.

    Most of us attempted to predict what might or might no happen to housing here. It’s interesting to read somewhat different predictions three years on. In that scenario, apparently:

    * Rents will be ever-increasing

    * Millions in the bank will earn zero percent

    * Foreign criminals will be the only property investors

    * Existing investors will somehow be evicted from the market.

    These are quite extraordinary claims, given recent trends.

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