Property Bubble in Australia

[Guest gratom]

see Feb 13th,SMH.Marcus Padley-Relax the greeks are doing fine.This is a slightly tongue in cheek view of this subject but does make a very serious point

[immy21]

Try telling some one in 1997 that prices are about to crash, people did! Where are they now and where will they be in 2017 Always higher!

Property is long term, 5 to 10 years. If the 'bubble' does burst it would have recoved within this time.

If however it too much of a risk to you rent instead

[Kabroom]

.And to quote Southrick 'there is something deeply wrong' financially when people use credit cards to pay for their groceries.

 

Hi

 

I really do not know where the housing market will go but thought I would reply to the above comment.

 

We have what is called a redraw account on our mortgage, so my husband gets paid and we immediately put his salary against the home loan to help 'fight' the interest charges.

 

Wherever possible I pay for bills, groceries etc by credit card and then redraw that amount at the end of the month from the home loan to pay for the credit card. We always pay off the balance in full.

 

I realise that this does not apply to a lot of people as they do get themselves into serious debt but just thought I would show you there is a flip side to the coin.

[Guest guest30038]

 

Wii games (I am referring to new games such as Super Mario Brothers) are priced at 32.99 (pounds sterling) on Amazon as opposed to $99 in all Australian stores.

 

 

 

We're not that backward in Australia that we can't access Amazon also :biglaugh:

 

kev

[Guest guest30038]

Hi

 

I really do not know where the housing market will go but thought I would reply to the above comment.

 

We have what is called a redraw account on our mortgage, so my husband gets paid and we immediately put his salary against the home loan to help 'fight' the interest charges.

 

Wherever possible I pay for bills, groceries etc by credit card and then redraw that amount at the end of the month from the home loan to pay for the credit card. We always pay off the balance in full.

 

I realise that this does not apply to a lot of people as they do get themselves into serious debt but just thought I would show you there is a flip side to the coin.

 

Good comment Wendy. I know of many people who use their credit card merely because they pay all their wages into a mortgage offset account, whilst that money is sat there, it is reducing their mortgage interest.

 

I also find it strangely curious that emphasis is placed on credit cards being used for groceries in Australia. I remember well that 15 yrs ago when we were living in the UK, the practice was widespread where we lived, and, (I may be wrong on this) mortgage offset accounts didn't even exist in the UK back then (at least not when we first got a mortgage)

 

kev

[Guest boa]

When we bought our house in Brisbane 9 years ago we paid $115,000, it is now valued at $400,000. Everyone says isn't it great that your house has risen so much. Why is it great ? If I sell it then I need to buy another place and that house has also risen the same amount. I could now sell this house anf buy something nice in the UK which would have been impossible years ago.

10 or 15 years ago no-one in their right mind would try and tell you it is cheaper to live in the UK than here but nowadays it seems to be a fact. I can buy a 2nd hand hybrid car for peanuts and pay 40 quid or whatever road tax, here that car would cost a fortune and my yearly registration would be many 100's of $'s. Food, clothes, whitegoods etc all seem cheaper in the UK, the perceived 'cheapness' of life here is what must influence many would be immigrants and of course be a huge shock to them when they get here.

[gemjay]

I think fundamentaly the biggest problem in Australia is that pay here is shocking in some sectors and is not at all in line with the cost of living, a lot of people who move to Australia take a pay cut, and are not prepared for the high cost of living and find it difficult to budget and adjust there spending habbits for quite a while.. you do realy have to think twice here before you treat yourself or do things that at home you dont have to think too much about ie.. take the kidds to the cinema, this is something we used to do every couple of weeks at home but it will be every couple of months here.. . and filling my trolley at the supermarket with whatever i want is a thing of the past i realy do have to take prices in to account much more and i was always a bargain shopper to start off with...

 

 

In late 2008, while the whole world was “stimulating” madly to avoid imminent financial Armageddon, the Rudd Labor government in Australia decided to skip the formalities. They simply decanted money directly into the bank accounts of the Australian populace. This government largesse - there was another payment in the first half of 2009 - has come to be known as the “flat screen bonus”. The Aussie retail sector was its direct beneficiary as Christmas 2008 and early 2009 sales soared wonderfully. The “flat screen bonus” did not make it into the second half of 2009 and the earnings results of the big Aussie retailers have reflected the lack of sales, to the great chagrin of their shareholders. The RBA didn’t start raising rates until October 2009, and the combination of higher interest rates and no “stimulus” payments are starting to bite. Just like the US, the Australian economy has been “consumer driven” for many years now. Consumption, however, is getting steadily harder.

 

 

 

 

[gemjay]

When we bought our house in Brisbane 9 years ago we paid $115,000, it is now valued at $400,000. Everyone says isn't it great that your house has risen so much. Why is it great ? If I sell it then I need to buy another place and that house has also risen the same amount. I could now sell this house anf buy something nice in the UK which would have been impossible years ago.

10 or 15 years ago no-one in their right mind would try and tell you it is cheaper to live in the UK than here but nowadays it seems to be a fact. I can buy a 2nd hand hybrid car for peanuts and pay 40 quid or whatever road tax, here that car would cost a fortune and my yearly registration would be many 100's of $'s. Food, clothes, whitegoods etc all seem cheaper in the UK, the perceived 'cheapness' of life here is what must influence many would be immigrants and of course be a huge shock to them when they get here.

Agree with your post entirely having spent 6 years in Australia, prices have moved up into another dimension compared to the UK which is suffering Deflation and Deleveraging brought about by a decade long credit binge which has still yet to unravell. Australian media do a fabulous job comparing oz to other nations in an attempt to keep the population spending its not going to last at some point the credit lines will be shut down and my guess is after March this year.:biggrin:

[Guest boa]

The media here love their comparisons especially if it can find a positive comparison to the UK and they can show the UK in a bad light. I have never really understood the insecurity necessary to need to constantly criticise other nations to make yourself look better.

[gemjay]

The media here love their comparisons especially if it can find a positive comparison to the UK and they can show the UK in a bad light. I have never really understood the insecurity necessary to need to constantly criticise other nations to make yourself look better.

Size of population and Insular Mentality are contributing factors caused by location and lack of History being still such a young country in economic terms.

[heyyu]

Agree with your post entirely having spent 6 years in Australia, prices have moved up into another dimension compared to the UK which is suffering Deflation and Deleveraging brought about by a decade long credit binge which has still yet to unravell. Australian media do a fabulous job comparing oz to other nations in an attempt to keep the population spending its not going to last at some point the credit lines will be shut down and my guess is after March this year.:biggrin:

 

not much of a guess we all know interrest rates will rise in march, and as for oz media having a go at uk ,it works both ways and sells newspapers you forget murdoch owns them all virtually :biggrin:and writes the same garbage here as he does in uk maybe i should have quoted BOA. ACCORDING TO YOUR PHIL DOWN UNDER OZ HOUSE PRICES ARE STILL ON AVERAGE 15000 CHEAPER THA N UK.

[gemjay]

not much of a guess we all know interrest rates will rise in march, and as for oz media having a go at uk ,it works both ways and sells newspapers you forget murdoch owns them all virtually :biggrin:and writes the same garbage here as he does in uk maybe i should have quoted BOA. ACCORDING TO YOUR PHIL DOWN UNDER OZ HOUSE PRICES ARE STILL ON AVERAGE 15000 CHEAPER THA N UK.

Agree interest rates are moving north, but of more importance is the Australian governments lifting of the bank guarantee at the end of march leading to an increase in costs for foreign moneys, leading to less credit availabilty and more expensive credit for Australia. In regard to house prices that is dependant on were you come from in the UK and were you want to live in Australia, for me its a no brainer UK will offer more houses for sale at distressed prices due to the state of the economy. Never heard of Phil down under so cant comment.:biggrin:

[Guest Toorak Trev]

Well I use my credit card for all expenditure does that put me in financial risk?

 

hope not with over $50m in the bank

[Guest boa]

It's a bit hard to compare house prices really, it would be virtually impossible to say average prices are $15000 less here than there. All I know is that for what I would get for my house I could buy a very nice place in the area I would choose in the UK. Also the comparison varies wildly because of exchange rate fluctuations. I also have no idea who Phil DownUnder is.

[gemjay]

Well I use my credit card for all expenditure does that put me in financial risk?

 

hope not with over $50m in the bank

Hi Toorak Trev, all I can say is living in Toorak with over 50mil in the bank would be something that myself and many others could never come to understand, you are blessed to be in that situation unlike many with huge Morgage debt and Credit Card debt which has only increased over the past year here in Australia and made many real estate agents very wealthy.:biggrin:

[heyyu]

alot of people use their credit card for all thier purchases because they set thier house loans up that way where all thier earnings are paid weekly into the house loan,then money is withdrawn as is needed through the card.as i think bank interrest is calculated on daily balances this helps to pay the property off much sooner,as opposed to paying once a month. i personally paid $110000 loan in three years this way.

[Guest iselinger]

If you can afford to then using your credit card to pay for all your purchases and then paying in full makes total financial sense.

 

Firstly you get a one off permanent loan of your average monthly spend plus provided you choose a suitable card you will get a small percentage back. Add to this that you don't need to carry much cash and its a no brainer!

 

The only fly in the onitment is if you are weak willed and spend more than you can afford to pay off in full!

[gemjay]

Thank you to everyone who replied to my initial post concerning the article in the SMH--very interesting,stimulating and contrasting series of views.Where the Oz economy is concerned I have a powerful sense of de-ja-vue it reminds me of the Uk economy approx three years ago.And to quote Southrick 'there is something deeply wrong' financially when people use credit cards to pay for their groceries.I sense an overheated and inflated financial structure--these are just my instinctive gut feelings[though I have sought various sources to back it up].This by a rather convolute route brings me to another 'gut-feeling' are we living in the twilight of a very large double-dip recession?-- are we stood looking into the abyss of a new 1930's?.I merely pose this as a discussable proposition.Any economic activity/recovery seems extremely anorexia;with a hangover of massive govt' debt.Because of the interlinks in the world economy whether the Australian govt' has little debt is not a massively important factor[we are all in the same boat together--no one is any longer financially autarkic].Geographic isolation does not beget financial isolation.To take something of a truism from the bible have we had our seven years of feasting and are now beginning the seven years of famine.To show the 'shakeyness' of the world economic structure just look at the effect[and still ongoing] of the Greek debt debacle[also don't forget the financial weakness of the other PIIGS-Portugal,Italy,Ireland,Greece and Spain--all have very large short term debt]The UK's is long to very long term.If pushed into a corner I am deeply pessimistic--and I think many Australians are living in something of a foolish-paradise.Having said that I desperately wish to be proved wrong---I have seen and my family has experienced the effects of recessions;I sense that many Ozzies haven't.I look forward to reading all of your thoughtful and considered retorts to my views[please prove me wrong I have several good australian friends].One final point-much has been made of australian natural resources;I suggest you read Jared Diamonds book[2005]titled Collapse;particularly the chapter on mining and Australian its a real eye openner on this point.It doesn't go into great detail with reference to decreased demand in a recession.As for the point about the huge coal contract with China;as an example of the Oz resource base,people should be aware that this is for a total quantity the price it is purchased at is fixed by reference to the day-to-day spot market and may therefore be much lower than the quoted total.The same applies to the gas/oil contracts in WA.Once again thank you for your views I greatly enjoyed reading them

 

 

The troubles in Greece do not stem directly from fiscal or monetary debauchery. There is no nation inside or outside Europe which is not on the same path - some faster, some slower. Nor do the troubles in Greece stem from the government’s shonky accounting practices. There is no nation inside or outside Europe where the government does not engage in similar practices - some more outrageous, some less. The troubles in Greece, which are now sweeping around the rim of the Mediterranean, stem directly from the results of the December sovereign debt downgrade by the US ratings agencies. As a direct result of these downgrades, the cost of borrowing in Greece has blown out from 50 to more than 400 basis points above the yield on equivalent German sovereign debt paper. It is this blowout which is putting intolerable pressure on the Greek government as it would on ANY government, including the US government. This pressure is, in turn, making it obviously much harder for Greece to get spending and deficits under control. And because of that, the “concern” about the future of the European “recovery” and the continued existence of the European Union and the Euro as a “viable” alternative reserve currency have been called into grave question. The US ratings agencies were well aware that this would be the outcome.

 

 

[Guest Durathor]

Well I use my credit card for all expenditure does that put me in financial risk?

 

hope not with over $50m in the bank

 

 

Judging by house prices and spending, you are not the only person in Australia living in a fantasy world.

[Guest Durathor]

alot of people use their credit card for all thier purchases because they set thier house loans up that way where all thier earnings are paid weekly into the house loan,then money is withdrawn as is needed through the card.as i think bank interrest is calculated on daily balances this helps to pay the property off much sooner,as opposed to paying once a month. i personally paid $110000 loan in three years this way.

 

 

Australians' mortgage, credit card debt and personal loans total over AU$1.2 trillion, which is an increase of 71% from just five years ago.

 

Australia's personal debt is 100.4% of the national GDP.

 

Individual debt stands at US$56,000 per adult which compares to US$44,000 in the US and even less in the UK.

 

Debt is debt whether it is held by government or it's people. At some point it has to be paid back.

 

There has been a period of personal debt consolidation and personal deleveraging in other major economic countries which has not occured here. This is because it feels here as though the credit crunch did not happen, so pre-cc spending and intense personal leveraging continues apace.

 

It's a worry and, I think, very noticable on the high street with ever higher prices and very little spare personal debt capacity. It's not reflected in official figures, but am I the only one who can palpably feel the inflationary imperative everywhere? I have just returned from the UK and it felt cheap and affordable, a pleasant retail experience. Who could have ever thought that?

 

I just think there is a price point at which Australia works and reflects the strengths and weaknesses of it's economy and location.

 

It doesn't feel right at the moment.

 

I don't want to have to extend debt provision to afford to visit another country or buy food. I am worried because I like it here, think it has so much going for it, but is becoming less attractive.

 

Lifestyle is a very large part decided by affordability.

[gemjay]

Australians' mortgage, credit card debt and personal loans total over AU$1.2 trillion, which is an increase of 71% from just five years ago.

 

Australia's personal debt is 100.4% of the national GDP.

 

Individual debt stands at US$56,000 per adult which compares to US$44,000 in the US and even less in the UK.

 

Debt is debt whether it is held by government or it's people. At some point it has to be paid back.

 

There has been a period of personal debt consolidation and personal deleveraging in other major economic countries which has not occured here. This is because it feels here as though the credit crunch did not happen, so pre-cc spending and intense personal leveraging continues apace.

 

It's a worry and, I think, very noticable on the high street with ever higher prices and very little spare personal debt capacity. It's not reflected in official figures, but am I the only one who can palpably feel the inflationary imperative everywhere? I have just returned from the UK and it felt cheap and affordable, a pleasant retail experience. Who could have ever thought that?

 

I just think there is a price point at which Australia works and reflects the strengths and weaknesses of it's economy and location.

 

It doesn't feel right at the moment.

 

I don't want to have to extend debt provision to afford to visit another country or buy food. I am worried because I like it here, think it has so much going for it, but is becoming less attractive.

 

Lifestyle is a very large part decided by affordability.

Splendid post, you've hit the nail on the head with every point you have put forward, the figures you have quoted in regard to individual debt are the biggest warning yet and they came out at the beginning of the year . Inflation is moving up at a rapid rate far higher than the official line, the likes of the UK have been in Deflation for at least a year hence more affordble goods (weak demand) caused by too much DEBT(morgage and personal debt). As you say DEBT IS DEBT and has to be paid back, the UK, Europe and US are living proof of this at the moment and Australia will follow the same fate at some point in the not to distant future IMO. Commodties demand is great for the Government and Investors (while theres a demand) at the moment but wont help the average debt laden Aussie.:biggrin:

[Guest gratom]

The troubles in Greece do not stem directly from fiscal or monetary debauchery. There is no nation inside or outside Europe which is not on the same path - some faster, some slower. Nor do the troubles in Greece stem from the government’s shonky accounting practices. There is no nation inside or outside Europe where the government does not engage in similar practices - some more outrageous, some less. The troubles in Greece, which are now sweeping around the rim of the Mediterranean, stem directly from the results of the December sovereign debt downgrade by the US ratings agencies. As a direct result of these downgrades, the cost of borrowing in Greece has blown out from 50 to more than 400 basis points above the yield on equivalent German sovereign debt paper. It is this blowout which is putting intolerable pressure on the Greek government as it would on ANY government, including the US government. This pressure is, in turn, making it obviously much harder for Greece to get spending and deficits under control. And because of that, the “concern” about the future of the European “recovery” and the continued existence of the European Union and the Euro as a “viable” alternative reserve currency have been called into grave question. The US ratings agencies were well aware that this would be the outcome.

 

 

Gemjay;thank you for your very interesting info'--it helps to give a more 'rounded' picture.Do you think we are in for double dip recession??,and potentially a new 1930's.After all gov'ts have no ammunition left in the locker to fend off another country/bank collapse that has been spent on the last one.Do you think the rating agencies are trying to sink the Euro/{I do}.Did you see the lengthy article in yesterday's sunday times concerning the greek crisis---probably online by now.Thanks

[martincburgess]

Hi, thought I would chip in with my two penneth (or half a cent due to a crap exchange rate!).

 

We moved out to Sydney just before Xmas. We moved from Bicester in Oxfordshire (in rented because when we moved to Bicester in 2007 we couldnt afford to buy). Right decision to rent in Oxford and I am staying put in rented in Sydney until things have settled.

 

Prices seem rediculously high for property - you wont get much for $1m near the CBD. You would be looking at at least an hours commute to get a smallish 3 bed detached house on the outskirts of the City for $750,000.

 

We spotted what we thought was a nice four bed detached house in Turramurra, which is about 45 mins NW of the CIty. When we saw it we found that whilst it was a nice house, it was wedged in the back garden of an existing property, overlooked and obviously a small plot. Price: $1.2m.

 

My wife and I have no kids and even if we both earned a reasonable wage we could not afford a mortgage and have anything like a decent lifestyle.

 

So this does beg the question how Sydneysiders are coping. Interest rates are creeping up - employment is ok but it isn't a great as people make out.

 

On our part we will try a save some Bucks for the next 12 month and wait and see.

 

At least there is some consistency - Estate Agents over here continue to try and talk the market up!!

 

Keep your heads down and keep plugging away!!

 

Martin

[Guest confused irishman]

I'm in Uk and saw the terrible effects of the last here.In Ireland which has seen a massive boom,based on emigration etc ;a fried tell me that housing in some areas has fallen by as much as 40%.Less in better areas more in some city areas,Prices are still falling;albeit not as fast.

 

i currently live in ireland where the property bubble burst. and it burst big time. i live in a town called carlow in the southeast of ireland. the building trade has all but stopped. off the top of my head i can think of about 200 houses that sit empty because the banks wont lend and the people wont pay what is being asked. all the major sources of employment have dried up in this town. the sugar factory , braun and lapple(not apple) have all pulled out, the building work is at a standstill with no new houses being built and no one can get loans to improve their homes because the banks wont lend. halifax bank just pulled out of ireland . they had a branch in carlow town. as you can see the place is a black hole for unemployment. the rest of ireland isnt fairing much better. all of this is the knock on effects of a housing bubble that burst. BUT our authorities let the rate of building out weigh the rate of demand. for example we needed 29,000 houses a year in ireland to meet demand so the powers that be allowed 90,000 a year to be built for 3 years running.others years they allowed 50-60,000 houses to be built. according to the green party we now have a surplus of houses to the tune of 200-300,000. thats ten years of house building done!!!

 

the bubble will burst in australia but if managed properly the effects should be minimal on the work force, unfortunately the irish govt did not manage it properly and as a result most tradesmen are f*****d in ireland. economies run in cycles, so a house price "correction" may be seen as inevitable. looking at how the australian govt handled the recent world downturn i think you guys have some reason to look forward with some optimism. the irish govt were like kids in a candy store with their communion momey when they got it.they spent spent spent. when the inevitable downturn came they were in massive debt within six months of coming out of the biggest economic boom in it history. tell me thats not massive econmic mismanagement. sorry about the rant but i have been on the recieving end of my govt mistakes for two years now. and they still want us to pay more. maybe if i could get a job i'd be happy to oblige.:arghh::arghh::arghh:

[heyyu]

i may be a bit simple,i look at like a household budget if i have more in the bank than what i owe im not to badly off,youll correct me if im wrong but australia has about 1.5 trillion invested in super could this not be used as a hedge against the debt.im only putting up my query to elicit a knowledgable reply