This Housing Downturn is Over

Discussion in 'Property Market Economics' started by Redom, 23rd May, 2019.

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  1. Brickbybrick

    Brickbybrick Well-Known Member

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    No one is saying that. But what if a retail worker on $50k is single? ;) The way things are going with this renewed boom with possible double digit increases in 2020, they may well struggle to buy anything in the big 2 cities except a studio in a questionable and outlying part of Sydney/Melbourne.

    I don't want to be presumptuous but some may interpret the member's comment regarding retail workers not owning property as as being contemptuous if not downright nasty, of lower income people etc. I tend to interpret it that way and I find that disturbing and I'm no socialist.

    People's career plans don't always work out (mine didn't and I'm a degree qualified office worker FWIW) and not everyone will end up on $200k pa, but the thing is anyone who is a careful saver, make sacrifices and doesn't indulge in smashed avocado should be able buy a house in an average/decent part of Sydney/Melbourne, like people used to. Like my parents and their relatives and extended family of no little education and non English speaking background working in menial jobs, were all able to do. But it would be far more difficult to achieve that now. The overall structure and economics of the housing market and unfettered immigration have seen to that.

    In any case the disconnect between earnings for the average person (not just in retail! ) and Sydney and Melbourne real estate is become greater and greater with the renewed boom (from an already high base) and one day, interest rates will rise again, and those manageable repayments on a large principal will become less manageable....
     
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  2. Woodjda

    Woodjda Well-Known Member

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    I agree with your ideas but rising interest rates aren't likely to be the trigger. There's no way the RBA hikes rates unless the economy picks up significantly in which case repayments will be fine. The only way for interest rates to really jump is if our banks funding costs skyrocket which would require either a global credit crunch or the local economy to blow up. In either case the property market would be toast before any rate hikes.

    For a trigger you've got to look at an economic shock (either local or global) causing prices to drop. Bank lending might tighten and interest rates on loans might rise (if the banks can't find funding) and exacerbate the problem but it's unlikely to be the initial trigger.
     
  3. Harris

    Harris Well-Known Member

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    I disagree with your post on many levels as much as I understand your desire (or someone in your shoes) to be able to achieve that aspirational milestone of home ownership.

    1- Home ownership rate in Australia has not changed much in the past 50 years, despite the level of hysteria one reads about in the media and online forums. The proportion of Australians owning their own homes has remained consistent at high 60s (percent) all this time. In fact back in 1940s and 50s, it was far lower:

    Trends in home ownership in Australia: a quick guide – Parliament of Australia

    2- The whole thinking around home ownership being an entitlement (even an aspirational entitlement) for someone who is working hard (or has worked hard) is generally flawed and single dimensional. The media and self serving politicians have generally flamed this view for their own interests and even if someone does not have smashed-avocados for breakfast and works full time, they are NOT entitled to own an home, when this remains the No1 goal of almost every individual and results in competitive forces that always leave 'some' proportion of population unable to attain that goal. Surely, work towards it, but simple economics dictate that you can never achieve a 100% home ownership rate, irrespective of how perfect the system or the society is.
    People in 1950s, 60s and 70s were not having smashed avocados or taking 2 gap years to travel the world, yet were still unable to own their home! This is economics 101.

    3- There is no 'contempt' in accepting the realities of an economic model which will "always" leave some to have less than others. One can/ should be able to discuss home ownership & property investing in a PI forum without being labelled as contemptuous, only because playing around the sensitivities will not produce a robust debate. I don't mean people are entitled to be d***s being intentionally insensitive or abusive, but short of that, one has to admit that there will always be someone lower in the socio-economic ladder complaining about not being able to own their own home.

    4- I greatly disagree about 'disconnect between haves and have-nots in this day and age vs say 50 years ago' argument. I sincerely believe, never in the history has there been so much information, clarity, transparency and accessibility (largely due to internet) that has enabled people to connect and create significant riches and the flexibility in job market (owing to the gig economy) has compounded that. The enterprising culture and the resultant business owners- a truckloads of them millionaires and billionaires attest to that.

    5- When you refer to "plans not working out" leading to "reduction in income or opportunities", that happens to everyone - from billionaires down to those on dole. It is a hard reality of life however given our egalitarian society and a robust healthcare/ education/ pension system vs other countries, I would not be anywhere but Australia if I was down on my luck. I poured millions of dollars into a very significant business liquidating my hard-won real estate equity and it all vanished. Another startup I created turned into a very successful float on London Stock Exchange. **** happens but one needs to move on.

    6- Immigration is not the devil! Poor policies are. Societies with no immigration (Eastern Europe/ South America, China, India, Russia etc) are no shining examples of perfect & wealthy societies! Immigration is one single denominator that has worked wonders for our nation and economy. We all only see and complain about the 'some' negatives that immigration brings (traffic, crime, house prices) but forget about the actual value it delivers in creating the system that enriches everyone, directly or indirectly. Immigration increases employment, consumption of goods and services and adds to labour pool that enriches Australian companies and in return increases the tax pool which gets spent on services & infrastructure. If Australian cities were so awful, 3/ 4 of them wouldn't be in the top 10 of world's most liveable cities!
    https://edition.cnn.com/travel/article/worlds-most-liveable-cities-2018/index.html

    What we do have I believe is an increasing culture of entitlement and lack of perspective. The perspective that discards all that is great today and focuses on some random (mostly untrue) attributes of years gone by - be it boomers or the generation prior. Add in perennial whingers (definitely not you but some others constantly lurking on this forum) and you have this megaphone effect of "poor old me hard done by haves" attitude.

    I wish you well on your journey to attain home ownership but I believe there is no better time to own a home than now with the opportunities that we all have around us. Having said that, pure stats will tell us/ you that 30%-35% of people will 'not' be able to afford a home just as they were not able to do that in 1940s, 50s, 60s, 70s, 80s, 90s and beyond and that is not because of PI or government or immigration or greedy capitalists!
     
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  4. Codie

    Codie Well-Known Member

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    Amazing post @Harris
     
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  5. frankjeager

    frankjeager Well-Known Member

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    enjoyed reading this post
     
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  6. scientist

    scientist Well-Known Member

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    Good points, just want to address the final one.

    Rates would rise only after a pronounced economic recovery, in which case those exposed to equities would have exposure to a huge upside before any rate rise. Not too worried.
     
  7. Andrewjh

    Andrewjh Active Member

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    Very interesting link you shared. Contra to what you say the data shows, I think it says that home ownership rates HAVE changed.
    The article says "rates of home ownership have changed markedly for certain age groups."

    "For example, in the 25–34 years age range, home ownership rates declined from 60 per cent of households in 1961 to 47 per cent in 2011."

    That's a 21% drop in home ownership rates over 50 years, among those in the 'establishing my life' stage of life. Actually the drop happened over 30 years.

    In other words, the age that the majority own a house has been moved forward by about a decade.

    That is a significant change.
     
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  8. kierank

    kierank Well-Known Member

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    Is that because this age group want their dream home NOW?

    ... and are prepared to wait a decade in order to get it?

    I bought my first PPOR when I was in my early 20’s. It was a dump.

    As we accumulated IPs, our PPOR (at the time) was the worst property we owned.

    For the last 40 years, we always rented our better properties to tenants.

    Seven years ago, we knocked down our then current PPOR (a dump) and built our dream home.

    We now live in the best house in our portfolio but it took us 30-35 years to get there. Delayed gratification I believe it is called.

    Just a thought?
     
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  9. Joseph Skewes

    Joseph Skewes Well-Known Member

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    I bought my first house in my early 20s for $290k in 2006 and sold it just over 3 years later for $392k. It had previously sold for $190k in 2003 and $110k in 1998. Today it's value would be around 500k. So:

    1998 - 2003: 72% price increase
    2003 - 2006: 52% price increase
    2006 - 2010: 35% price increase
    2010 - 2019: 27% price increase

    It's value has increased 4.5x over the space of 20 years.

    It was a very basic 3 bedroom house on a large block and didn't see any major improvements through that time period (new oven and the roller shutters on the front may have been installed during those 20 years).

    It's not a particularly desirable suburb.

    It's around 10km from the city (which in Adelaide would be considered middle ring).

    I put a photo below. Not exactly a dream home.. is it? And this was after we spent some money and time fixing up the front yard to sell it.

    Do you think wages kept up with the price appreciation over that entire period?

    If not, do you think it would be fair to say it is objectively harder for a first home buyer to save a deposit for their first home today, even when they aren't aiming for a dream home?

    And this is in Adelaide... Sydney and Melbourne first home buyers aren't as lucky as those in Adelaide where prices haven't risen very strongly in the past 9 years or so.

    Just a thought.

    upload_2019-12-7_19-51-18.png
     
    Last edited: 7th Dec, 2019
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  10. kierank

    kierank Well-Known Member

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    I paid $26,000 for mine :eek:.
    I am surprised that anyone would get any capital growth in Adelaide :D.

    You have done well.
    Why do people always limit themselves to just their wages and it’s growth.

    I am one who didn’t place such restrictions on myself :eek:.
    Why do people always limit themselves to Sydney and Melbourne (or even Adelaide).

    I have never bought in Sydney nor Adelaide. I sold my last property in Melbourne in 1981 (38 years ago).

    I am one who didn’t place such restrictions on myself. My latest property purchase was less than two years ago and I paid $324,000.

    Currently there is 92,000+ properties listed for less than $325,000 on www.realestate.com.au

    Surely, at least one of them is worth an investigation.

    Just a thought ;).
     
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  11. Andrewjh

    Andrewjh Active Member

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    It’s clearly not just that.
     
  12. Timb89

    Timb89 Well-Known Member

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    These types will talk of delayed gratification, whilst being the most indebted group in the world.
     
  13. kierank

    kierank Well-Known Member

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    Pray tell, can you elaborate on what you believe it is.

    I have a daughter and a son in that 25-34 age group.

    Both own a house in Melbourne and a house in Brisbane.

    Both bought their first property before they turned 25.

    Both bought their second property property in their early 30’s.

    Both of them and their partners work and they have blessed us with three grandchildren.

    None of their four properties are their dream homes.

    And no, we haven’t given them any financial assistance; only inspiration, knowledge, support, experience, ... as any good parent would.

    They are way ahead of my wife and I when we were at that age. The big difference is that they took action way earlier than us.

    The sooner one gets on the property merry-go-round, the greater chance one will be successful.

    I know the above is an anecdote and, for some on PC, anecdotes don’t count :D.
     
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  14. kierank

    kierank Well-Known Member

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    Because they are dumb and they are lucky.
     
  15. Joseph Skewes

    Joseph Skewes Well-Known Member

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    What does this prove?

    I am refuting your suggestion that home ownership rates are falling because young people are trying to buy their dream house.

    Saving a deposit is objectively more difficult today than for past generations (because prices are higher relative to incomes), whether you are buying in a capital city or regional.

    Point me to any one of those 92,000 homes that is as easy to buy today as it was 20 years ago, once you deflate wages by their growth over the same period.
     
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  16. Joseph Skewes

    Joseph Skewes Well-Known Member

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    Here is the most recent listed property: 51 Education Lane, Sea Lake, Vic 3533

    $259,000 for a 3 bedroom home on 2000sqm. Bargain, right? Well I guess if the first home buyer can land a job in a 600 person town..

    ..also there is the convenient data that proves my point. It last sold in 2003 for $55,000. So a 4.7x increase over 16 years.

    Objectively more difficult to buy for a first home buyer today, than when it last sold.
     
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  17. Andrewjh

    Andrewjh Active Member

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    Nah. This is where property chat becomes crap.
    Earlier post said home ownership rates haven't change. I pointed out the link they shared shows that, at a generational level they have changed.

    Your children are admirable. If you look at my other posts, you'll find I take a similar line to you. I think its more achievable than many say.

    But what's the point in over simplifying?
    Yes ownership rates have changed - they have gotten older.
    No its not just because people are more fussy.

    Probably it has at least something to do with Melbourne median house prices costing 8x the median wage rather than 3x the median wage like they did in the 1980s.

    Probably people have become more fussy.
    Possibly its also to do with more broken families, longer tertiary education timelines, different priorities... and a number of other factors.

    I'm just saying... home ownership rates HAVE changed. For what its worth, I think that supports the bull case rather than the bear case. There is more pent up demand than ever before. It's like a coiled spring.
     
  18. kierank

    kierank Well-Known Member

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    It shows there is a lot of opportunity out there to buy property, if people really want to get take action and get on the merry-go-round.

    I am "on the merry-go-round" and I bought one of those 92,000+ properties. I am one of those Australians who is taking action and will continue to do so.

    Some of us will take the risk and jump "on the merry-go-round"; others will stay on the sidelines and whinge about how fast it is going. I have a number of family members in my age bracket and the 25-34 age bracket who are sitting on the sidelines; I also have a number "on the merry-go-round" with me who are enjoying the ride.

    Each to their own.

    BTW, these properties are all way less than 4 times median gross household income.

    It wasn't making a suggestion but was asking a question (actually it was in two parts).

    I have copied that part of my post below and highlighted the pronunciation marks that you may have missed:
    Then I followed these two questions with the approach I have taken to get "on the merry-go-round" and stay on it.

    In a subsequent post, I wrote what my two children (both in the 25-34 age group) have done in the last 10 years to get "on the merry-go-round". They are not sitting on the sideline.

    As I posted, they are ahead of where I was at their age. I believe they will end up a lot further ahead of where I am when they get to my age in 30 years time.

    They are definitely not sitting on the sideline.

    I have never said that getting on the merry-go-around is easy NOR do I believe that it is impossible.

    In 1972, when I was 16, my grandfather told me he felt sorry for my generation as he believed that it was impossible for us young people to ever buy a property.

    Luckily, I didn't listen to him.

    I have spent a lot of time inspiring my two 25-34 year old children to invest for their future including getting into property, setting up an SMSF to buy shares, ... I told them that it wasn't going to be easy but it is doable with hard work, sacrifice, ...

    Luckily, so far they have listen to me.

    Who cares what it was like 20 years ago; none of us can go back there.

    All we can do is decide whether we want to take action in the present OR sit on the sidelines. It is that easy. I believe you reap what you sow; if you sow nothing, you get nothing.

    I do learn from history. One thing I am reminded a lot of from PC is that no-one can predict the future. Some of posts from the last couple of years are now verging on comical.
     
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  19. kierank

    kierank Well-Known Member

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    I didn't realise you were an amateur comedian :D.

    Two can play this game. I would recommend you have a look at this property.
    455 Ferrall Street, Coober Pedy, SA 5723

    At $15,000, it is really a bargain; might even be able to low-ball it if you offer cash. As well, the population is triple the size. Also, the land is about half; so less time spent gardening.

    On a serious note, this one is the same area as my last purchase. Similar money to your little gem but is a small town of around 170,000.

    33 Obst Street, Harristown, Qld 4350

    Yeah, prices of some property go up over time. So what? That is NOT breaking news

    You want property prices to go down? If so, there are many places to buy if you want that. For example, mining towns have a long history of achieving this.

    Guess what? I can't predict the future but I bet your little gem will be priced higher in 16 years time than it is today.
     
  20. Joseph Skewes

    Joseph Skewes Well-Known Member

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    Who cares what your kids are doing; not everyone is in their position.

    Home ownership rates are falling and it is harder to save a deposit today (which is a contributor to this), something shown by the data, not anecdotes. That is all I am saying.
     
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