ducktape Posted June 4, 2011 Share Posted June 4, 2011 I was lead to believe that Australia build nearly the same amount of homes per annum as the UK? So it would be different in terms of supply and demand based on population size, but I may not have my facts totally correct. Quote Link to comment Share on other sites More sharing options...
Av8r Posted June 4, 2011 Share Posted June 4, 2011 I was lead to believe that Australia build nearly the same amount of homes per annum as the UK? So it would be different in terms of supply and demand based on population size, but I may not have my facts totally correct. The issue is not how many houses are built in total, nor total population size, but rather how many houses are being built relative to the expansion in household formation numbers. So for example in the UK population is growing by around 400,000 people per year, and around 250,000 new households per year are being created. But only just over 100,000 houses per year are being built. That will obviously provide significant support to a market starved of finance, as it drives up rental yields and thus attracts investment capital seeking returns. In short, there is a floor price for just about any house in the UK as if you can't sell you can rent it out profitably instead, and whenever prices do fall to a certain level, an investor jumps in and buys it. The only reason rents have risen so strongly, and thus supported the wider market, is because there is a shortage of housing. If there was a surplus, like the USA and Ireland, our prices would have fallen just as far. I'm inclined to believe Australia's market is closer in nature to the UK's than to Ireland or the USA in that regard. But I haven't seen the numbers. Quote Link to comment Share on other sites More sharing options...
ducktape Posted June 4, 2011 Share Posted June 4, 2011 you may well be right I m no expert but Australia's population growth is not as large as the UK's in that sense yet they build close to the same number in new homes. So there supply and demand is not quite like ours. Easy credit is still about I got offered it the other day on a building project 10% was all I needed to put down... I just don't like easy credit because its too tempting, know what I mean. Quote Link to comment Share on other sites More sharing options...
KIRK AND CO Posted June 4, 2011 Share Posted June 4, 2011 Firstly - you can take out redundancy protection insurance. Secondly - many redundancies pay out quite well if you have been with the company for a while - and if you've only just started a job - then you shouldn't be buying a house. Thirdly - has no one ever heard of savings? We have no debt other than our mortgage, and we have a years salary in savings - just in case I get made redundant. Fourthly - if people obided by these simple rules, house prices wouldn't boom and then bust - putting people in -ve equity. Lastly - just because the banks are willing to lend - it doesn't mean you have to. There are pushers of all things everywhere - but it's your choice as to whether you subscribe. And it's these peoples own fault if they get into trouble. Love the medicine. Quote Link to comment Share on other sites More sharing options...
Av8r Posted June 4, 2011 Share Posted June 4, 2011 Easy credit is still about I got offered it the other day on a building project 10% was all I needed to put down... I was offered a mortgage with 5% deposit in the late 80's. A mate got a 100% mortgage in the early 80's. 10% deposits for houses are historically very sensible, and pretty far from "easy credit". Commercial projects have usually required 15% to 25% up front. I know everyone wants to blame bankers, or greedy investors, or governments, or easy credit, or whatever. But the reality is far more complicated. Fundamentally speaking, my understanding is that Australia has had several decades of high population growth and under-building of houses. If so, then this is likely to be the main reason behind most of the price rises. I don't doubt a correction or adjustment of some sort is possible, perhaps even likely. But as mentioned already, absent economic meltdown on the scale of Ireland or America a full blown crash is unlikely in the extreme. Quote Link to comment Share on other sites More sharing options...
ducktape Posted June 4, 2011 Share Posted June 4, 2011 we'll have to agree to disagree on 'easy credit'... but if Australia decide to get rid of negative gearing I think there is going to be some problems, rents are already high enough and if this is abolished how will the market cope? Quote Link to comment Share on other sites More sharing options...
lyndalelodge Posted June 4, 2011 Share Posted June 4, 2011 When the Missus and i got our first house together in 1999 we got a 110% mortgage to add to our car loan, 3 furniture HP's and 3 credit cards (all nil balances mind). I'd say that was easy credit. It's so different now. 2 of my clients with excellent credit history's can't get the bank to up their respective mortgages for new kitchens, etc, despite them being only 50% loan to value approx. They both earn more in a year (pre tax) than their mortgages and the increases they were after were very modest (£20k approx). In one guys case, it really was "computer says no!!!". The bank manager (allegedly) couldn't understand the decision, but couldn't override the computer!! And we wonder why small businesses are struggling in the UK?! Quote Link to comment Share on other sites More sharing options...
Guest Anya Posted June 4, 2011 Share Posted June 4, 2011 we'll have to agree to disagree on 'easy credit'... but if Australia decide to get rid of negative gearing I think there is going to be some problems, rents are already high enough and if this is abolished how will the market cope? It is a HUGE myth that rents shot up because NG was abolished years ago....this 'fact' has been well researched and debunked. Quote Link to comment Share on other sites More sharing options...
Av8r Posted June 4, 2011 Share Posted June 4, 2011 2 of my clients with excellent credit history's can't get the bank to up their respective mortgages for new kitchens, etc, despite them being only 50% loan to value approx. They both earn more in a year (pre tax) than their mortgages and the increases they were after were very modest (£20k approx). In one guys case, it really was "computer says no!!!". The bank manager (allegedly) couldn't understand the decision, but couldn't override the computer!! And we wonder why small businesses are struggling in the UK?! A nasty situation, lending in the UK at the moment. Businesses starved of credit for investment, households unable to obtain loans, even with great credit histories, and first time buyers almost totally locked out of the market due to the mortgage famine. And all the while, the banks ramp up their margins to the few folks they do lend to, and pay themselves huge bonuses anyway. Even though prices are a fair bit lower today then they were a few years ago, 70% fewer people are able to buy..... Which is somewhat ironic for those that thought lower prices would help potential first time buyers. Law of unintended consequences and all that.... Quote Link to comment Share on other sites More sharing options...
S92LAME Posted June 4, 2011 Share Posted June 4, 2011 my wife and i bought our first house on what was almost litterally one of the last 100%+ mortgages in 2008. 2 weeks before they were all withdrawn. she was 25 i was 31, and both proffessionals on good money. its not a flashy hose or a big house, but its what we felt we could afford without crippling ourselves. i would love to have bought earlier but i couldnt afford it. the difference for us i think, was that it was affordable for us, at only 1.5 times our annual salary. and the repayment at the moment is not even a 10th of our monthy gross income. nothing in the house is financed and never was. we furnished the house with what we would have used for a deposit and are replacing the cheap junk furniture as we go as well as renovating the house as the money comes in. i would like it now, now, now like lots of people but i work within my means! i did get a loan last year to pay off two credit cards that were getting too costly, like 30%+ APR. when i got the quote from my bank i got two figures for different amounts. 18-22%. when the actual application went through the woman i was dealing with said she'd been getting rejections all day which didnt fill me with confidence! it came back, not only approved but with a lower APR! so i signed as quick as poss! Quote Link to comment Share on other sites More sharing options...
KIRK AND CO Posted June 5, 2011 Share Posted June 5, 2011 When the Missus and i got our first house together in 1999 we got a 110% mortgage to add to our car loan, 3 furniture HP's and 3 credit cards (all nil balances mind). I'd say that was easy credit. It's so different now. 2 of my clients with excellent credit history's can't get the bank to up their respective mortgages for new kitchens, etc, despite them being only 50% loan to value approx. They both earn more in a year (pre tax) than their mortgages and the increases they were after were very modest (£20k approx). In one guys case, it really was "computer says no!!!". The bank manager (allegedly) couldn't understand the decision, but couldn't override the computer!! And we wonder why small businesses are struggling in the UK?! And they need a loan ?? what ever happened to old fashioned saving. Quote Link to comment Share on other sites More sharing options...
lyndalelodge Posted June 5, 2011 Share Posted June 5, 2011 And they need a loan ?? what ever happened to old fashioned saving. They had a historic business loan with another company being paid at high APR and wanted to keep any excess cash for re-investment in their business (new equipment, vans, storage property, etc), but to re-finance the loan through their (much) lower APR mortgage. It's not for me to to tell someone how much to spend on themselves, re-invest in their business or so on, but it seemed to make sense, without telling you all the nitty gritty. The jist is that someone with an excellent credit history, low LTV and more than enough earnings to repay the loan couldn't actually get borrowing!! Quote Link to comment Share on other sites More sharing options...
calNgary Posted June 5, 2011 Share Posted June 5, 2011 I have tided the last few pages of this thread up and so a few posts have been removed. Cal x Quote Link to comment Share on other sites More sharing options...
Guest Andy Posted June 5, 2011 Share Posted June 5, 2011 Love the medicine. Love the medicine? Quote Link to comment Share on other sites More sharing options...
KIRK AND CO Posted June 5, 2011 Share Posted June 5, 2011 Love the medicine? This thread was cleaned up for a reason move on life is to short so go & enjoy it. Quote Link to comment Share on other sites More sharing options...
ducktape Posted June 5, 2011 Share Posted June 5, 2011 It is a HUGE myth that rents shot up because NG was abolished years ago....this 'fact' has been well researched and debunked. I asked a question ‘how will the market cope?’ rents are in Australia already high enough? Is negative gearing a viable business model? Quote Link to comment Share on other sites More sharing options...
Guest Posted June 6, 2011 Share Posted June 6, 2011 I want a $800,000 house for $650,000 when i get over cash buyer, drop em like hot cakes! for me, its about time too. Quote Link to comment Share on other sites More sharing options...
Onyaweb Posted June 6, 2011 Share Posted June 6, 2011 I would kind of like the houses in Australia to fall relative to the UK, so that we can sell up in the UK and get more for our money in Oz. However, I have watched 2 rounds of redundancy at my current employer and it is not a fun environment to be in. Sometimes there are hard working competent people who fall victim. If you stay employed, great. In fact we probably actually better off because of the drop in interest payments on our mortgage. Quote Link to comment Share on other sites More sharing options...
Joebloggs Posted June 6, 2011 Share Posted June 6, 2011 The drop in house prices did not help Ireland's unemployment rate (currently 15%) and things are really bad there, why would Australia need to import more unemployed people who don't qualify for benefits for 2 years? Try buying a reduced price house with no job. Quote Link to comment Share on other sites More sharing options...
Av8r Posted June 8, 2011 Share Posted June 8, 2011 The drop in house prices did not help Ireland's unemployment rate (currently 15%) and things are really bad there, why would Australia need to import more unemployed people who don't qualify for benefits for 2 years? Try buying a reduced price house with no job. Yes that just about sums it up. I think we can all sympathise with people that are priced out of the market, but a crash and the inevitable associated recession isn't the "solution" anyone should be hoping for. Quote Link to comment Share on other sites More sharing options...
Joebloggs Posted June 8, 2011 Share Posted June 8, 2011 Yes that just about sums it up. I think we can all sympathise with people that are priced out of the market, but a crash and the inevitable associated recession isn't the "solution" anyone should be hoping for. I don't believe that most people reading this thread are priced out of the market, they are just priced out of the market they want to be in. Its that simple. They have 2 options 1) Re- Train in a better paying occupation. 2) Lower their expectations and buy in a cheaper suburb. Quote Link to comment Share on other sites More sharing options...
Graemsay Posted June 8, 2011 Share Posted June 8, 2011 I think we can all sympathise with people that are priced out of the market, but a crash and the inevitable associated recession isn't the "solution" anyone should be hoping for. I'm not sure if I agree with that. The median Sydney house price is somewhere north of $600,000, versus a median household income of around $70,000 to $80,000. For prices to their long run affordability, it would take a drop of 40% to 50% from the current figure. So on the order of $250,000 to $300,000. Add in the cost of borrowing that, and it roughly doubles over the lifespan of a mortgage. Losing a year or two's income, which is entirely possible during a recession, comes to around $150,000, or about half the amount that property could fall by under a bearish scenario, or quarter of the cost of financing the extra via a mortgage. There are some corner cases that could get very painful in a recession and house price crash. A family who were out of work for one or two years and had a substantial loss on their home could end up in a hole that would take years to dig their way out of. The worst case scenario is probably what's happening in the UK, where there's been the pain of a prolonged recession mixed with flat house prices and rising rents and other living costs. I do agree that there's a lot of wistful thinking about a pain-free housing correction, but it ain't going to happen. But I remain to be convinced that preserving the status quo is massively preferable to the alternatives. Quote Link to comment Share on other sites More sharing options...
Joebloggs Posted June 8, 2011 Share Posted June 8, 2011 I'm not sure if I agree with that. The median Sydney house price is somewhere north of $600,000, versus a median household income of around $70,000 to $80,000. For prices to their long run affordability, it would take a drop of 40% to 50% from the current figure. So on the order of $250,000 to $300,000. Add in the cost of borrowing that, and it roughly doubles over the lifespan of a mortgage. Losing a year or two's income, which is entirely possible during a recession, comes to around $150,000, or about half the amount that property could fall by under a bearish scenario, or quarter of the cost of financing the extra via a mortgage. There are some corner cases that could get very painful in a recession and house price crash. A family who were out of work for one or two years and had a substantial loss on their home could end up in a hole that would take years to dig their way out of. The worst case scenario is probably what's happening in the UK, where there's been the pain of a prolonged recession mixed with flat house prices and rising rents and other living costs. I do agree that there's a lot of wistful thinking about a pain-free housing correction, but it ain't going to happen. But I remain to be convinced that preserving the status quo is massively preferable to the alternatives. I would be a bit sceptical about using median house prices v income especially around Sydney as there are quite a lot of people with massive equity in their property or own their house outright. Sure it would be a level playing field for everyone if they all arrived fresh of the boat in the last 5 years but plenty of old Aussie money around in some of these expensive properties. Good example of a guy works for me, he lives in a $1.4m house in Avalon beach and has done since 1984 he earns $75,000 so how can he afford it? Well he bought it for $88,000 in 1984 . My OH parents live in a house in the Hills worth $650k they owe nothing on it. Friend of my OH brother is 23 and just inherited a $800k house near beecroft. There would be many many examples of this, most Sydney houses were traditionally 1/4 acre block but over last 20 years these have been subdivided into units, duplex or battle axe properties plus Aussie families tend to be small (usually 1 or 2 kids) If you are starting fresh and on average wage then you are at a serious disadvantage, plenty of people might be able to afford an average modest property north of $600k on an median wage but their homeloan might only be $200k if they even need a home loan at all. Quote Link to comment Share on other sites More sharing options...
Graemsay Posted June 9, 2011 Share Posted June 9, 2011 Sure, but where does the equity come from? There isn't a magic equity fairy who flutters down, and with a flick of her wand deposits several hundred thousand dollars of value in a property. It comes from those entering the market, and represents a generational transfer of wealth from the young to the old. Furthermore, equity generally comes from rising prices. If you look at a mortgage calculator, it's apparent that very little of the loan is repaid in the first half of its term. Rapidly rising prices actually constrain buyers' ability to move up the market. Sure, your property has doubled in value, but that nice place you wanted to buy has also seen similar growth. And as it was more expensive, that's made the cost to buy it relatively much more expensive. Over the past ten or fifteen years, prices in Oz have been rising in excess of incomes. For some reason a lot of investors believe that this is a sustainable state of affairs, but that's really expressing an inability to grasp compounding series. Don't worry, even mathematicians are terrible at doing this. See the quote by Grantham at the end of this article. If you actually do the calculations, then assuming house price growth of around 7%, versus wage growth of 3.5% will lead to the median price being 100 times the median income by 2090, 1000 times in 2160, a million times in in the 2360s, and a billion times in the 2570s. Obviously there is a limit somewhere, and if you look at any of the very long term studies, such as the Herengracht Index or Shiller's research, the trend is that prices will track incomes because people have to pay for properties somehow. There's even a handy graph, which shows the US bubble nicely. I'm not going to predict imminent falls (though prices are sliding across much of Australia at present), but it is impossible for prices to continue to rise ahead of incomes over anything more than a few years. Quote Link to comment Share on other sites More sharing options...
Guest Bullion Baron Posted June 10, 2011 Share Posted June 10, 2011 I don't believe that most people reading this thread are priced out of the market, they are just priced out of the market they want to be in. Its that simple. They have 2 options 1) Re- Train in a better paying occupation. 2) Lower their expectations and buy in a cheaper suburb. The difference is our parents didn't have to do that. They could afford to buy a decent median home using a single wage. That's not possible any more. Quote Link to comment Share on other sites More sharing options...
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