Can property prices outpace wage growth?

Discussion in 'Property Market Economics' started by Marcus Yuuu, 23rd Jul, 2018.

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  1. Perthguy

    Perthguy Well-Known Member

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    If I have half a million in super and most of that is in shares then I might want to buy an investment property to diversify. The problem is that investment properties are expensive and illiquid. Brickx tries to address that through fractional investing. As you point out, there are issues with this approach.

    Probably why it hasn't taken off ;)
     
  2. Perthguy

    Perthguy Well-Known Member

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    All of them. You just need a big enough lot for the zoning.
     
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  3. Bender12

    Bender12 Well-Known Member

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    Thanks. That's interesting, might have to look more into it :)
     
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  4. Perthguy

    Perthguy Well-Known Member

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    There are some spectacular single bedroom dwellings being built in Perth now. These were by our resident developer @Westminster. I toured two during open house Perth and loved them.

    JUST STUNNING!
     
  5. euro73

    euro73 Well-Known Member Business Member

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    Imagine one of those with NRAS on it!
     
  6. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    I have 3 of them with NRAS :p
     
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  7. Perthguy

    Perthguy Well-Known Member

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    Do you have an actual source for this "insane" amount? Or is it all made up?

    Personally, I find it hard to believe that an "insane" amount of household savings just "dissappeared" in a month.
     
  8. marmot

    marmot Well-Known Member

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    You just assume that deposits with Australian banks belong to ordinary mums and dads .
    Much of it is tied up with SMSFs,Term deposits and larger super funds, they have a habit of moving money around that will get the best return .
    The money doesn't actually disappear it just moves somewhere else is search of a higher return, but the end result is banks have to get the money from somewhere else.
    Its the unintended consequence of keeping interest rates to low and has longer term implications if the US keeps on aggressively raising rates and a stronger US dollar.



    Has it ever occurred to you why the RBA has generally kept Aussie rates slightly higher than US ?? over the last 30-40 years


    Banks face cash squeeze as fund managers, households draw deposits | Australian Stocks News

    Banks face cash squeeze as fund managers, households draw deposits
     
    Last edited: 4th Aug, 2018
  9. Perthguy

    Perthguy Well-Known Member

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    Source?

    Last I checked Australian household savings doesn't include cash from super funds.
     
  10. ymmf

    ymmf Well-Known Member

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  11. BuyersAgent

    BuyersAgent Well-Known Member Business Member

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  12. Xjas

    Xjas Active Member

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    I though that was only supports staff which doesn't include teachers?
     
  13. helena83

    helena83 Well-Known Member

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    The opening sentence from the article in the OP:

    "Property anywhere anytime can't KEEP rising faster than wages. That's just arithmetic."

    This is 100% true, but what one interprets from it can be 100% false. It's obvious that the statement in isolation is true. We can't have prices increasing forever at a rate higher than wages. At some point in time it will reach the tipping point. The fallacy is in thinking we are at the tipping point now.

    For example let's say hypothetically that the tipping point is a ratio of house prices to income of 1,000,000:1. That is prices will crash when the price of a median house is a million times the average wage. Let's also hypothetically that 100 years ago the ratio started at 1:1. And kept increasing year on year until it is now 20:1. So 50 years back people would have looked at the increase to date and thought it's increased too much. Now they're looking at thinking the same thing. 50 years from now they'd be thinking it's crazy. But it could potentially keep going.

    So yes it can't keep out stripping wages forever, but when that tipping points comes no one knows.
     
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  14. Coxy89

    Coxy89 Well-Known Member

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    Except everyone knows the tipping point because it will be set around what people can pay off in a 50ish year working life.

    Its not as bad now prices have come off a bit but chances of median prices doubling even in the next 10 years look slim. Still plenty of opportunity in property but it wont be the same for buy and hold investors
     
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  15. helena83

    helena83 Well-Known Member

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    Why? Because so far people feel like they need to pay off the property within their working life? That's true so far but that could so easily change. Especially if people believe that property will have continuous capital growth, and especially so if they believe it will have growth that will outstrip wage growth, that belief will fuel that very thing happening. So they will happily get into a loan involving a 70 year term if they thought that the equity built up into the property will be the get-out-of-jail-free card. That is, they won't care that they may still have a sizeable mortgage left on the property when they hit retirement because the property will be worth so much that they can sell up, pay the bank out, pocket the sizeable change and downsize to somewhere cheaper.

    So no, I don't think the 50 year payback is necessarily the tipping point. It would be interesting, and I'd be surprised if someone hasn't already done it, to model various scenarios studying feasibility taking into account various parameters such as interest rates etc. to try and predict what that tipping point will be.
     
  16. Codie

    Codie Well-Known Member

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    That's a bold statement. Or opinion I should say.

    Id more suggest the tipping point has more to do with interest rates and ease of credit, Or DTI's.

    I may be wrong but I don't think you could model it, given a huge portion of the property market actually has little/no mortgage attached to their property, affordability or that "tipping" point you speak is different for everyone. Its a complex argument.
     
  17. Woodjda

    Woodjda Well-Known Member

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    You're right that the logical conclusion is just to have longer mortgages. Japan had mortgages that spanned to future generations in their boom.

    The problem is that as prices keep massively outstripping wages this means building houses and apartments is incredibly profitable so you generally get a construction boom. This leads to huge supply and rents being crushed making renting by far the smarter economic alternative unless property prices keep booming. Eventually enough people twig that renting is cheap and buying means taking a massive gamble on house prices rising indefinitely. So less people buy as supply increases due to all the building and prices fall. Once it becomes clear prices aren't rising and that's the only justification for spending so much even more people decide not to buy and the housing market collapses. This is normally associated with an economic recession as the construction industry collapses once house building is no longer profitable.

    As far as I can see Sydney is at the point where rents are being crunched, there's a massive oversupply of housing and buying makes no sense except if you expect prices to boom indefinitely. The questions now are when will people realise this and will another part of the economy prevent a recession from the construction collapse?

    I think real house values being lower in Sydney in 5 years time is practically a certainty based on past history of other cities and countries having similar booms. I'm just not sure if that means we have flat prices as the AUD drops and wages catch up to prices or we see a major collapse and recession. If the current rise turns into a 2-4 year boom then we'll be looking at an almighty cliff once the music stops.
     
  18. Sackie

    Sackie Well-Known Member

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    Can property prices outpace wage growth?

    Yes and in some places it already is. Wage growth doesn't take into account a whole myriad of factors of what makes up most loan applications. And its not single wages. Plus you got overtime, people selling other properties then using that cash to lower the loan needed on a bigger house, using inheritances to buy etc.

    Then you have lower priced property booming and dramatically increasing in price over time. Nothing to do with wages, but more so to do with value disparity, gentrification of area etc

    Wage growth is important but its definitely not the determining factor imo.
     
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  19. marmot

    marmot Well-Known Member

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    Wage growth is the main determining factor of a healthy economy and its continuing growth.
    The events leading up to the 1929 stock market crash are a classic example of consumers en masse that stopped spending money and a stock market that failed to reflect this and became massively overpriced.
    While this was going on , they were also in the midst of a drought and low crop prices with many farmers in stress financially..
     
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  20. Sackie

    Sackie Well-Known Member

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    I've no idea , I'm not investing in a healthy economy but individual real estate markets. That's all I care about when it comes to investing.
     

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