Settlement is in a week, but the money will go mostly into term deposits and shares for now. I am looking to wait for the property market to take a dive and then buy a nice house at the bottom of the market and live debt free.
2011 Melbourne's housing prices
- Thread starter Can Opener
- Start date
- Tagged users None
🥰 Love BigFooty? Join now for free.
- Joined
- May 8, 2007
- Posts
- 5,573
- Reaction score
- 11,777
- Location
- between two bowling alley
- AFL Club
- Richmond
If the USA is anything to go by, if the house prices crash the shares follow. If your punting on a property crash a savings account would probably be the best option then (even then, just hope the bank doesn't go bust).
I don't believe there is going to be a crash. However, I can't see property prices rising much for the next one or two years, so shares are currently the best investment imo.
Log in to remove this Banner Ad
- Joined
- May 8, 2007
- Posts
- 5,573
- Reaction score
- 11,777
- Location
- between two bowling alley
- AFL Club
- Richmond
I bought my house several years ago (3 bedroom, 1/4 acre block in the croydon area). I rented it out while still living at home for a couple of years while I payed off as much of the mortage I can. I have reduced the repayments to manageable level and in the process of moving in. By the end of the year I should only have a $60,000 loan ($550-$600 per month repayment). There are still some ways to own a house in the current environment if you make the sacrifice and think outside the box. But as the other poster said, you have to really give it a lot of thought and decide what's best for you. If you can't live within your means or the sacrifices seem daunting when buying a property then renting would be the best option.
- Joined
- Apr 19, 2008
- Posts
- 2,572
- Reaction score
- 372
- Location
- Melbourne
- AFL Club
- Western Bulldogs
- Other Teams
- Celtics/Bills/Tottenham/Red Sox
Isn't the overall trend the prices will always increase though, even if they go down for a while?
- Joined
- Jun 5, 2008
- Posts
- 1,734
- Reaction score
- 814
- Location
- In amongst it all
- AFL Club
- Collingwood
- Other Teams
- Wallabies, Queensland State of Origin
Its very interesting
We're living in a 2 income society.
Young average earning young couple both earn around $50k p.a. thats about $750 per week or $6000 combined per month.
They buy a a $500k home + $50k stamp duties with $100k deposit and have a debt of $450k .
At 9% interest theyre repayments are going to be around $3000 per month or half their income.
In 10 years they are going to have paid about $350k just in interest.
If their house isnt worth $900k ($550 purchase + $350k interest) they have effectively lost money.
Apparently a couple of generations ago it was all about having 1/3rd deposit when buying a house and this sounds about right today. Rent until you have a 3rd deposit or youre going to make life very difficult for yourself, especially when the tin-lids arrive & youre on 1 income for a few years and paying $80 child care per day
We're living in a 2 income society.
Young average earning young couple both earn around $50k p.a. thats about $750 per week or $6000 combined per month.
They buy a a $500k home + $50k stamp duties with $100k deposit and have a debt of $450k .
At 9% interest theyre repayments are going to be around $3000 per month or half their income.
In 10 years they are going to have paid about $350k just in interest.
If their house isnt worth $900k ($550 purchase + $350k interest) they have effectively lost money.
Apparently a couple of generations ago it was all about having 1/3rd deposit when buying a house and this sounds about right today. Rent until you have a 3rd deposit or youre going to make life very difficult for yourself, especially when the tin-lids arrive & youre on 1 income for a few years and paying $80 child care per day
Have you heard of the term 'rent money is dead money'?
This is the reason why I laugh when people tell me this.
I look at it from a rent vs. interest payment. Both of these payments are 'dead' money. For my current annual rent, I can only borrow about 115k before the 9% interest payment exceeds it.
Granted, that figure will decrease over time due to capital payment and inflation. But what kind of property can I buy with that, even if I have a healthy deposit? If I want a home out in the sticks its going to cost me at least $350, if I want a home somewhere practical it will be at least $500k.
I am also not going to ignore the sacrifices I am going to have to make in order to meet those payments once I am locked in.
From what I hear, financial advisors around the world generally say you shouldn’t spend more than two to three times your annual income on your house. And it's not hard to see why.
So until they reach that level I'm sitting happily on the sideline. And if they never reach that level again, I'll be happy sitting on the sideline.
Dead money indeed.
- Joined
- Apr 13, 2006
- Posts
- 34,887
- Reaction score
- 84,295
- Location
- The Bitter End
- AFL Club
- Port Adelaide
The only way I see a real big crash are both related to China/Asia. ie ther Chinese economy goes belly up and they stop buying our raw materials, plus further ramifications which would lead to a truely world wide rececession rather than a North Atlantic one, and also Asian investors cashing out of the Australian real estate market would have a huge effect on house pricers, particularly in Melbourne where they have seemingly been a major cause of the latest 09/10 boom
.
- Joined
- May 5, 2006
- Posts
- 66,604
- Reaction score
- 76,240
- AFL Club
- West Coast
$115k @ 9% IO is $200 a week.
Can't speak for where you live but that rents approximately SFA in Perth.
$250 a week will rent you a 2 bed unit 30km from the city.
A 2 bed unit in the same area can be bought for around $200k.
Assuming zero deposit whatsoever, interest at 9% on your $200k is under $350 a week.
The Australian real estate obsession is sad and unhealthy, but it's not as though everyone with a mortgage is paying $3,000 a month interest to live in a house they could rent for half that.
Can't speak for where you live but that rents approximately SFA in Perth.
$250 a week will rent you a 2 bed unit 30km from the city.
A 2 bed unit in the same area can be bought for around $200k.
Assuming zero deposit whatsoever, interest at 9% on your $200k is under $350 a week.
The Australian real estate obsession is sad and unhealthy, but it's not as though everyone with a mortgage is paying $3,000 a month interest to live in a house they could rent for half that.
Yes, I pay $200 a week.
Without giving my location away, it's close to Melbourne. Its a studio appartment close to my work. Decent size, by a major road. I could pay a lot more, but TBH I quite enjoy it.
Still overpriced IMO. There is a reason why units are cheaper than houses.
No, but that’s generally the situation new entrants would face.
- Joined
- May 5, 2006
- Posts
- 66,604
- Reaction score
- 76,240
- AFL Club
- West Coast
OK...
I didn't say it was or wasn't value for money, that's just the costs of renting and buying in that area.
Buying a home is expensive, but at the end of the day once you've paid off the loan you end up with a home. That's why people do it...
If you rent the above unit for $250 a week and assume on average over that time your rent increases with inflation at say 3% you'll end up paying around $444,000 over 25 years.
If you buy the above unit with a $10k deposit, $7k FHOG and an interest rate of 7.5% (easily available now fixed for 5 years) and pay $250 a week increasing at 3% each year you'll end up paying $444,000 over 25 years. You'll also end up with a unit and the prospect of not paying a cent in interest or rent again.
Anyone taking out a SVR loan today that incurs $3k a month in interest is borrowing $450-500k.
No one is forcing new entrants to borrow that much, but the average $500k house doesn't rent for $1500 a month over here.
- Thread starter
- #39
May i ask what factors do you base this on??
- Joined
- May 5, 2006
- Posts
- 66,604
- Reaction score
- 76,240
- AFL Club
- West Coast
Probably wants to buy a cheap house I'm guessing.
I agree houses are hugely overvalued, I agree that Australians' obsession with real estate wealth is unhealthy and I agree many sacrifice a huge amount to be mortgage slaves, but there is a big jump between the trends of the last 5, 10 or 20 years changing and a US-style burst bubble.
- Joined
- Jun 5, 2008
- Posts
- 1,734
- Reaction score
- 814
- Location
- In amongst it all
- AFL Club
- Collingwood
- Other Teams
- Wallabies, Queensland State of Origin
Its getting ridiculous.
I was always taught you dont ask people how much they earn and how much they paid for their house.
Nowadays its common BBQ speak to hear people crapping on about how much their house is worth and how theyve fixed half and the other half is variable.. cant we just talk about footy or girls?
- Joined
- Dec 7, 2000
- Posts
- 11,560
- Reaction score
- 8,444
- Location
- Victoria home of football
- AFL Club
- West Coast
- Other Teams
- Eagles
That scenario applies if you overstretch yourself. I recently bought a 2nd property (have sold 1st), looking to have it paid off in about 5yrs if I'm disciplined while affording myself a healthy cost of living budget. My missus will still be <30yrs of age when we (hopefully) have our home paid off, which effectively gives us a lifetime of financial freedom.
If we choose to upgrade to a bigger house or nicer suburb, that's a choice we can make at that point in time.
We only borrowed about 40% of what the bank was offering us*. Too many people borrow up to the maximum allowable, then spend 30 years repaying the loan and living on a tight budget as per your scenario.
*NOTE: We had a good deposit, but that's courtesy of saving. Take advantage of living with mum & dad while you can!
- Joined
- Apr 2, 2006
- Posts
- 1,994
- Reaction score
- 474
- Location
- Edinburgh
- AFL Club
- Richmond
- Other Teams
- QPR, Heart of Midlothian
This is something I have a hard time getting my head around. We pay $1500 per month to rent. Value of the property is at least $1.5 million (land value). Mortgage repayments borrowing 100% @ 9% interest only would be $11,250 per month. Thats 7.5 times higher than renting the property! On the face of it, it seems ridiculous to buy.
However, the values in my areas have been going up 12% p/a over the long term. Say you have $11,250 per month to spend either on your mortgage or renting + investing (I don't have anything close to this!). You could spend that on interest only repayments on a $1.5 million house in this area and you would only need a rise in the value of the house of 9% p/a to breakeven, plus you wouldn't be paying rent. On the basis that the house price increases at 12%, you would make a net gain of $45,000 per annum (increase in value of 180k-interest repayments of 135k).
Now, you could spend $1500 per month on rent, and invest the remaining $9750 per month. But to get a $45k net gain per annum on $9750 per month, at least in the first year, you would need to find an investment which returns 69% per annum. And the rent knocks off $18k, so in reality you would need to make a $63k net gain per annum for the first year or 90% per annum to match the growth of the house, and come out the other end with $180k in equity.
This is of course over the very short term (1 year). Over the long term (25 years) its slightly less biased in favour of the house - but the house still emphatically wins:
If the house continues to rise in value @ 12% p/a, it will be worth about $23 million in 25 years, leaving you with about a $18 million equity net of the $1.5m mortgage and $3.4m in interest repayments you have made. Meanwhile, if you kept renting and investing that $9750 per month @ a good return of 10% p/a, you would have made $10million in net interest plus the money you contributed, which totals about $13 million net equity. So you'd be $5million better off over 25 years to have jumped in and invested in the house. And that isn't even considering the fact that most people aren't diligent enough to independently invest the difference between what they could pay towards a mortgage and what they do pay towards rent. And this is in the most extreme example where my rent is equivalent to 7.5 X the mortgage repayments. The closer a property gets to cash flow neutral, the more enormous the difference between investing in said property and renting it and investing elsewhere becomes.
Unless all the doomsdayers are correct
- Joined
- Mar 24, 2004
- Posts
- 1,469
- Reaction score
- 422
- Location
- Ljubljana, Slovenia
- AFL Club
- Port Adelaide
- Other Teams
- Port Adelaide
^^^^^^^^^
not really weighing in one way or the other, but what you have ignored is leverage.
In your borrow to buy scenario you are calculating the annual gain on the overall value of the house, and then calculating the overall net gain once the loan is paid off.
In your rent and save model there is no leverage. There is however no reason why you could not go to the bank and get a margin product with a monthly payment equal to your savings. Any return you get will then be multiplied by this leverage over the long run (up or down).
At the end of the day you need to consider only the long run total return for the asset class, and then decide if you want to leverage into it, either through a residential mortgage or a margin product.
IMHO an annual return of 12% plus rental yield is not sustainable and therefore the future return is likely to be less than this. Similarly the share market has been pretty flat for the past few years and is perhaps therefore likely to trend upwards towards the long term mean.
not really weighing in one way or the other, but what you have ignored is leverage.
In your borrow to buy scenario you are calculating the annual gain on the overall value of the house, and then calculating the overall net gain once the loan is paid off.
In your rent and save model there is no leverage. There is however no reason why you could not go to the bank and get a margin product with a monthly payment equal to your savings. Any return you get will then be multiplied by this leverage over the long run (up or down).
At the end of the day you need to consider only the long run total return for the asset class, and then decide if you want to leverage into it, either through a residential mortgage or a margin product.
IMHO an annual return of 12% plus rental yield is not sustainable and therefore the future return is likely to be less than this. Similarly the share market has been pretty flat for the past few years and is perhaps therefore likely to trend upwards towards the long term mean.
🥰 Love BigFooty? Join now for free.
- Joined
- Mar 21, 2006
- Posts
- 15,736
- Reaction score
- 14,488
- Location
- On Deadly Ground
- AFL Club
- Brisbane Lions
- Other Teams
- Seagal, Hull, Hibs
http://suggest.getup.org.au/forums/...-home-buyers-property-buyers-strike?ref=title
Interesting.
On another issue there seems to be a lot of stock starting to build up in areas. Perth, Queensland, Adelaide, Tasmania. Plus RP Data had figures showing stock was at its highest level since 2008. I guess we'll get a doubling of the first home owners' grant again soon!
Interesting.
On another issue there seems to be a lot of stock starting to build up in areas. Perth, Queensland, Adelaide, Tasmania. Plus RP Data had figures showing stock was at its highest level since 2008. I guess we'll get a doubling of the first home owners' grant again soon!
- Banned
- #46
- Joined
- May 8, 2007
- Posts
- 5,573
- Reaction score
- 11,777
- Location
- between two bowling alley
- AFL Club
- Richmond
I find this very interesting as well. Lol reading the comments on the link. All these people praying for a housing crash and willing to go out of their way to try to cause one. What they seem to fail to comprehend is that with a crash happens a recession comes as a result (going by the other countries). They look at places like the USA, Britain, Greece and Ireland and think how lucky they are to have house prices come down but forget about the mass unemployment. If someone is unemployed it doesn't matter if a house costs $500,000 or $300,000, they still can't afford it.
The best thing for everybody is for the house prices to stagnate or increase below inflation for a several years. This will prevent a recession and make house prices more affordable.
- Joined
- Oct 22, 2007
- Posts
- 9,979
- Reaction score
- 1,119
- Location
- Road to nowhere
- AFL Club
- North Melbourne
Good thread with some really good contributions.
If I were an over-leveraged home-'owner', I'd just be praying that nobody does a Pauline Hanson anytime soon and brings popular attention to the ramifications of high immigration in this country. Let's face it: substantially reduce immigration and house prices will come a tumblin' down.
Abbott and his Big Party/Big Business/Big Media cronies might have done a good number on Hanson back in the day, but the public sentiment which saw enjoy an incredible political rise all those years ago remians, and is only growing.
If only the punters realised...
If I were an over-leveraged home-'owner', I'd just be praying that nobody does a Pauline Hanson anytime soon and brings popular attention to the ramifications of high immigration in this country. Let's face it: substantially reduce immigration and house prices will come a tumblin' down.
Abbott and his Big Party/Big Business/Big Media cronies might have done a good number on Hanson back in the day, but the public sentiment which saw enjoy an incredible political rise all those years ago remians, and is only growing.
If only the punters realised...
- Joined
- May 5, 2006
- Posts
- 66,604
- Reaction score
- 76,240
- AFL Club
- West Coast
House prices won't 'tumble' if immigration is reduced.
The only thing that will lead to house prices 'tumbling' is people not being able to afford their mortgages.
The only way that will happen is if interest rates rise to levels that push the over-leveraged over the edge, or unempoyment rises to levels that people stopping having income altogether - and both of the above apply to owner occupiers and investors.
Immigration certainly place upward pressure on demand for properties (both renters and buyers) but cutting it certainly isn't going to lead to a spike in unemployment...
A 'crash' is a poor (and hugely unlikely) outcome for Australia. The best outcome one should hope for is that prices simply stop rising above and beyond inflation year after year, and that Australians let go of their ridiculous obsession with 'wealth' through property. The longer that prices rise out of step with wages the more likely a 'crash' becomes, but, the while prices continue to stangate/fall slightly as they are currently while the rest of the economy hums along fine that chance is getting slimmer and slimmer.
The only thing that will lead to house prices 'tumbling' is people not being able to afford their mortgages.
The only way that will happen is if interest rates rise to levels that push the over-leveraged over the edge, or unempoyment rises to levels that people stopping having income altogether - and both of the above apply to owner occupiers and investors.
Immigration certainly place upward pressure on demand for properties (both renters and buyers) but cutting it certainly isn't going to lead to a spike in unemployment...
A 'crash' is a poor (and hugely unlikely) outcome for Australia. The best outcome one should hope for is that prices simply stop rising above and beyond inflation year after year, and that Australians let go of their ridiculous obsession with 'wealth' through property. The longer that prices rise out of step with wages the more likely a 'crash' becomes, but, the while prices continue to stangate/fall slightly as they are currently while the rest of the economy hums along fine that chance is getting slimmer and slimmer.
- Joined
- Oct 22, 2007
- Posts
- 9,979
- Reaction score
- 1,119
- Location
- Road to nowhere
- AFL Club
- North Melbourne
On what do you base this astounding claim?
Not only that, but it increases the perceived value of land, as people realise that the available land around Australian major cities (and we only have a handful of them) is not growing, but demand for it will be (due to a greater national population). If people believe that any given house will be 'worth' more in the future, they are more likely to take out a mortgage on the property of a greater amount than they would if they believed the house's price would remain stagnant.
It's common sense.
I also agree that a crash is unlikely. I've been saying it for years. It is unlikely that the people will wake up any time soon. Especially when anybody who tries to politically stand up to this 'bug australia' nonsesne risks ending up being dealt with the same way Hanson was.
But, you never know...