Society/Culture Australian Property Prices to Crash?

[Scotland]

Look at the size of that aerial. That's a big aerial. What do you think? Add a bit of value?

What do you know about lead?

 

[Seeds]

Who said wages are falling?

If your mindset is 'I'm earning more, I better borrow more' then housing affordability will never ever be solved ever. It's almost a foreign concept now to borrow $500k earning $80k then over time earn $100k and use the extra to pay down the $500k as fast as you can. All example figures of course.

Sorry i must of misread your email. I thought you said the impact of house prices on affordability will be eroded by wages.

 

[Scotland]

Sorry i must of misread your email. I thought you said the impact of house prices on affordability will be eroded by wages.

I did and it should be.

Affordability is a function of income vs price (and cost of credit, which is on the income side).

You can't argue that wages going up will just push prices up but then argue that prices will come down and everything will be OK. If prices come down then houses become more affordable relative to income, which encourages buying, which pushes prices up. Supply and demand 101.

We won't ever see a magical ratio of 3 or 4 to 1 of median income vs median price if everyone maxes out their borrowing capacity at all income levels.

 

[Royal Flush]

First home owners grant make house deposits more affordable. Not house prices. Numerous work suggests that the impact of home owner grants on house prices is more than the home owners grants value themselves

Where is that exactly sited and how does it translate to increase in house price's.

Families monthly average mortgage or rent payments are usually in the multiple thousands. Groceries would be less than a thousand. Energy around 200 to 600 dollars. So mortgages and rents are more important to household budgets. Even if they were less important they still would have a dramatic increase on inflation. If mortgage and inflation were only 20 percent of household budgets (they are a lot more but lets say 20) then a 10 percent increase in house prices would increase inflation by 2 percentage points on its own. If the target was 2 percent and household goods and services were growing at the target then adding in house prices in the above scenario would change inflation from 2 to 2 * 0.8 + 2 = 3.6 percent. I.e. It would completely blow up the inflation target and force the rba to sharply tighten interest rates and prevent further house rises. It would of stopped the house price boom in its tracks..

In Australia, the CPI is calculated by the Australian Bureau of Statistics (ABS) and published once a quarter. To calculate the CPI, the ABS collects prices for thousands of items, which are grouped into 87 categories (or expenditure classes) and 11 groups. Every quarter, the ABS calculates the price changes of each item from the previous quarter and aggregates them to work out the inflation rate for the entire CPI basket.

Negative gearing inflates herding behaviour effects on asset prices but it doesnt start them. I could add it as well.

When interest rates are high, people tend to keep their capital in banks.

When it's low they'll park it in stocks or houses.

A lot of investors prefer it parked in stocks because it's liquid and easily accessible, more so then property. Where you maybe forced to hold longer then desired.

If the housing sector is cost prohibitive most of the liquidity in our country will be pulled out and parked elsewhere. This will have severe repercussions in our construction sector trickling down to effect other parts of our economy.

Negative gearing has never been a reason to invest in property alone.

It's been an inticement , because the costs of getting in and out are expensive. Like your previous post suggested further taxing gains on investment will just make it undesirable.



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[Jello_B]

What should it be? and why do people pay so much for it?

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My thoughts are about $1-$1.2M.
Lots of individual reasons why - anticipated capital growth being one.

 

[Jello_B]

That is more justifiable than Punchbowl being close on $1m. Rozelle/Balmain are highly popular with medium to higher income professionals as it is close to the Sydney CBD. The land and its location are major drivers of property values that is why suburbs like Punchbowl look over valued at $1m.

Agree.

 

[Royal Flush]

My thoughts are about $1-$1.2M.
Lots of individual reasons why - anticipated capital growth being one.

Care to share some of those reasons for us that are unfamiliar with Sydney

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[Jello_B]

Care to share some of those reasons for us that are unfamiliar with Sydney

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Sure, my basis is around salary and salary bands for housing affordability. In my simple approach it is effort being rewarded in a salary form, and that effort against a living standard.
For example, if you are a qualified accountant with 10 years experience, and you’ve done well (worked hard) society should reward you with a certain level of living. It is I good saying to a young person that ‘hey do well in school, do 4 years of Uni, work hard for 10 years and you get to live in this dump 2 hours from your work place’.

 

[Minka Beaver]

Baby boomers have stolen from other generations. They have driven up the house price to income ratio two fold once their generation owned the majority of housing assets through perverse housing policies which is theft from the younger generations. They granted themselves free uni education to be paid for by future generations. baby boomers who were public servants granted themselves extreme retirement payouts to again be paid by current genrations of taxpayers. They have kept the retirement age for pensions the same as it was decades ago even though life expectancy increases means that the average retirement period has doubled. They also excluded their expensive houses from the pensions means test which means many baby boomers are living in 2million dollar properties near the city and earning pension money. And then ofcourse there is the super tax rort which only baby boomers get to use.

The single biggest shift in the Australian economy (and that of most advanced economies) in the last half century has been retaining women in full-time work. It's the biggest single factor in rising asset prices and even household purchasing power.

 

[Royal Flush]

Sure, my basis is around salary and salary bands for housing affordability. In my simple approach it is effort being rewarded in a salary form, and that effort against a living standard.
For example, if you are a qualified accountant with 10 years experience, and you’ve done well (worked hard) society should reward you with a certain level of living. It is I good saying to a young person that ‘hey do well in school, do 4 years of Uni, work hard for 10 years and you get to live in this dump 2 hours from your work place’.

Sounds like London or new York

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[Scotland]

Sure, my basis is around salary and salary bands for housing affordability. In my simple approach it is effort being rewarded in a salary form, and that effort against a living standard.
For example, if you are a qualified accountant with 10 years experience, and you’ve done well (worked hard) society should reward you with a certain level of living. It is I good saying to a young person that ‘hey do well in school, do 4 years of Uni, work hard for 10 years and you get to live in this dump 2 hours from your work place’.

The whole system is skewed by a once in a generation boom in asset prices couple with an obsession with accumulation. When my parents and their friends were starting out back in the 70s they had nothing in terms of assets behind them. Fast forward to today and it's very common for people in that age bracket to own an above median priced home outright, and a holiday home, investment property/properties...

Assuming you worked a couple of years, saved a deposit and bought a house you are actually better off being a teacher or accountant or whichever average/median income job you choose who was in their 20s in the 80s or 90s than someone earning $100-150k who was born after about 1980. The cost of living really isn't that high - if - you've been on the real estate ladder long enough.

 

[its free real estate]

The single biggest shift in the Australian economy (and that of most advanced economies) in the last half century has been retaining women in full-time work. It's the biggest single factor in rising asset prices and even household purchasing power.

Women! Even when it was the immigants I knew it was them.

 

[Minka Beaver]

Women! Even when it was the immigants I knew it was them.

It's rumoured some immigrants may even be women.

I know. It stunned me too.

 

[Royal Flush]

The whole system is skewed by a once in a generation boom in asset prices couple with an obsession with accumulation. When my parents and their friends were starting out back in the 70s they had nothing in terms of assets behind them. Fast forward to today and it's very common for people in that age bracket to own an above median priced home outright, and a holiday home, investment property/properties...

Assuming you worked a couple of years, saved a deposit and bought a house you are actually better off being a teacher or accountant or whichever average/median income job you choose who was in their 20s in the 80s or 90s than someone earning $100-150k who was born after about 1980. The cost of living really isn't that high - if - you've been on the real estate ladder long enough.

That's the case when you compare it to the inner Melbourne and greater Sydney area markets.

Someone with the money required to buy a shitbox in punch bowl, could use that same amount of money to buy a brand new 300sqm home on land backing onto a canal with their own pontoon to park their boat (with the change) 40km from Brisbane CBD.

Or a more modest 5bd house for under 600k with pool..

Or even more modest 4bd house for under 500k. With a modest combined household income of $150k.




I'm guessing it would be similar in Adelaide, Perth ECT

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[its free real estate]

It's rumoured some immigrants may even be women.

I know. It stunned me too.

They should all be women, preferably

 

[Scotland]

That's the case when you compare it to the inner Melbourne and greater Sydney area markets.

Someone with the money required to buy a shitbox in punch bowl, could use that same amount of money to buy a brand new 300sqm home on land backing onto a canal with their own pontoon to park their boat (with the change) 40km from Brisbane CBD.

Or a more modest 5bd house for under 600k with pool..

Or even more modest 4bd house for under 500k. With a modest combined household income of $150k.

I'm guessing it would be similar in Adelaide, Perth ECT

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What are you talking about? The fact that you can get 500sqm of land in the boonies for the same price as an apartment closer in was not my point at all.

A modest 3 bedroom home in a decent area used to be the domain of the median income earner. Now that same home is worth $1m, making it the domain of the income rich or those who are old enough to have considerable equity. There is a huge disconnect.

 

[Royal Flush]

What are you talking about? The fact that you can get 500sqm of land in the boonies for the same price as an apartment closer in was not my point at all.

A modest 3 bedroom home in a decent area used to be the domain of the median income earner. Now that same home is worth $1m, making it the domain of the income rich or those who are old enough to have considerable equity. There is a huge disconnect.

A 300sqm home , not land.
It is a massive house. Case in point , compared to a punch bowl s**t box for the same price.

Point being you saying how disadvantaged people are with income to house cost ratio now days

There are plenty of opportunities for people to buy within 3.5 X their household income to mortgage ratio.

Just because you'd like to live in a certain place doesn't mean you *should* or are entitled to afford it.


I can't see why that is unfair

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[Scotland]

You don't get it.

I could probably afford to buy a house in Laverton for cash, should I move there?

There are two schools of thought. The first is that society is on an acceptable path that each generation has it worse off than previously. A path that mind you is not very well worn. My median wage in 1985 bought a 3x1 on 500 sqm 10km from the city but your median wage can have a 300sqm block 40km out and that's fair because you can afford it, and by the time you have kids they can live in an apartment tower 60 sqm out. Fair's fair.

The second is that society should function a bit more equitably than that. If you want to be a high roller and earn millions then by all means buy a mansion in Peppermint Grove, I won't begrudge you. But the idea that the golden ticket you need is being born between 1950 and 1980 is a bit sick.

 

[Royal Flush]

You don't get it.

I could probably afford to buy a house in Laverton for cash, should I move there?

Ok I get it so you're smooth, and yes you wouldn't live in Laverton and you dont, even though you can. I get that.

But lets get inline with the affordability question;

Median House Price 3BR in Laverton $580,000. ( i just saw a house listed $530,000-$570,00 on 662m2 land) $580,000 less 10% deposit $58,000 is $522,000. For a 3 x 1 household income needs to be $174,000.
Q2 2018, Average full-time male salary $87,209, Average full time female salary $74,563 = $161,772

So yea, you'd kind of fall short on the 3:1 debt to income so i can understand the complaining

. But the idea that the golden ticket you need is being born between 1950 and 1980 is a bit sick.

How is it a golden ticket?
So if you buy a home in 1980 and pay it off within 15 years at 17% interest or whatever it was at the time.
The value of the house 38 years later means sweet * all if you still live in it. It may only be a concern to your children if they're counting their inheritance prematurely.

Here are some subtle differences between 1980 and today;

Cost of an average domestic flight
1980 $592
2018 $337

Cost of a Portable Color TV
1980 $589
2018 just go to harvy Norman catalogue

Cost of an Outdoor gas BBQ
1980 $199
2018 about the same or less.

Cost of a Space Saver Microwave
1983 $579.99
2019 $48 Kmart

 

[Scotland]

Laverton, WA.

 

[Scotland]

It's a pretty pointless exercise if you just assume every household has two full time workers in it.

 

[Royal Flush]

they both sound like s**t suburbs

 

[Royal Flush]

It's a pretty pointless exercise if you just assume every household has two full time workers in it.

If your a bloke, get a 2 bedroom flat in footscary then.
Who cares.

 

[Jello_B]

Sounds like London or new York

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How so?
Is there any disagreement with my logic, noting that there will always be exceptions such as inheritance outcomes.

 

[Royal Flush]

How so?
Is there any disagreement with my logic, noting that there will always be exceptions such as inheritance outcomes.

You paint a bleak picture, and a pretty undesirable one.
I guess its a mindset question, why buy in the first place?