Australian Housing Affordability Discussion

[medhead]

Re: The totally off-topic thread

Well when I went close to defaulting when interest reached 17% and we were on one wage, it didn't feel quite as sunny as you suggest. Family helped us out of a difficult position, and the only way we could draw on the extra value back then was to sell the house from over our heads. The banks wouldn't lend more when we were struggling to pay what we already owed.

Yep, the banks were complete [insert negative character assessment] in those days. But the ability to service a loan increased quickly in those days, provided you had a stable job. Even in 1991 I remember getting 6% to 8% pay rises, much better than the 2.5% I got this week.
I also spent close to 10 years at uni and busted my hump for $45 a day with the Army Reserve because of the recession we had to have.

 

[TomVexille]

Re: The totally off-topic thread

Ah, I can see you are WELL-educated in the way you have pulled the old two card trick...

In one price comparison you use median wage and in the more recent one (quoting you) it is average wage. That's an apples and oranges comparison unfortunately <PEDANT hat appearing as if by magic...>

Using the same stat would be a better start. Then you need to compare the servicing cost of the assumed 90% loan at both times, and say for arguments sake add in 1989 when mortgages were taken by some at 17%. Today I can lock in a 5 year fixed rate mortgage for under 4% with redraw/offset available to a limited extent).

So the cost of servicing is less than one fourth what it was at the worst (mid of baby boomers house buying peak period). So (mischievously different) ratio of price to med/avg income x cost of servicing makes house in 1977 more costly than today and perhaps less than half of what it was in 1989/90.

(Cue violin music)- gee you guys are SOOO lucky back in my day ...and that was followed by the recession we had to have where for the first time since the 1920s accountants, financiers and marketers got retrenched as well as other workers. <screen fades to black>

What has always hit me - is the pure 'sticker shock' of looking at say a $500,000 or $1,000,000 mortgage and remembering 17% interest rates. Even on the low $500,000 mortgage amount (choking as I typed low) that is $85,000 AFTER TAX dollars in 1989 cost days which meant around $170,000 pre-tax.

Today it is as little as $18,000 After tax dollars or $37,000 pre-tax. BTW these examples assume interest only.

Not much comfort though if you cannot afford it but it does illustrate what may be at the back of some BBs commenting.

BIG difference would be to look at what the median person spent money on in 1989 vs now. For example the typical replacement cycle for TVs is as low as 1/4 the time it was in the 1980/90s for example although the TVs are still working. Similar with PCs unfortunately. A house nearby put out three desktops and Samsung LCD screens - I picked up one of each out of interest and yes they both still worked perfectly. The desk top (4 years ago now) even had a working bluray writer in it - happy local day care shortly thereafter.

One aspect that is not often discussed is the change in the social mindset. The advent of high cc use has seen a fall in the 'commitment' aspect in the typical psyche. How many people reading this thread use lay-by for example vs instant purchase on cc? In the 1970s, 80s and 90s - layby was many fold higher a % of consumer spending than it is today. Coincidentally (not at all actually) outstanding credit card debt is an even higher multiple per capita.

The shock of a mortgage - a legal contract locking you in for up to 30 years - seems far more confronting when the typical person's horizon often does not extend beyond next weekend these days. AFFers scheming on maxing points earn being somewhat of an exception - the rise in mobile phones has seen a concomitant fall in planning for the future.

How many people do you know who will be planning on where to meet up even as they are walking in the general direction of the person they are going to meet and talking on the phone to decide the location/cafe/restaurant?

Nah, it reads average wage both times.

I have a $200 chromebook that's at least 5 years old, and the TV is even older.

Yes I have a CC, but that gets paid in full every month, I never pay interest on those. I only buy the things I can afford, and keep putting money away. It's still out of reach for the next couple years until I actually get closer to the average wage.

So back to the numbers. 1977 interest rates were 9.88%. Which at a 20% deposit means that one would have paid about $63/week of the $212 they made a week. Or just under 30%. The same calculation today at an interest rate of 3.8% leaves the average person paying 42% of their weekly wage. Yes, the late 80's sucked for buyers, but that's a small blip in the grand scheme really. Since the start of 1964 the rates have generally stayed between 5 and 10%.

Now if you know of a bank that's willing to let me lock in anything under 4% for the 30 year term, please let me know. I'll be in a world of pain if I buy an overpriced POS and the interest rates go up as they inevitably will.

 

[RAM]

Re: The totally off-topic thread

Another set of Waahaas about 17% interest rates with the same failure to mention that inflation was vastly higher as well meaning that the value of the property was increasing very quickly, much quicker than today. And wages were also increasing at a much higher rate, meaning ability to service the loan even at high interest rates was the same or better.

Actually medhead property was not increasing faster than inflation from 1989 through to 1995 - it plateaued and fell in price during the 'recession we had to have'. Commercial property was hit worst. I tried to organise a consortium to buy a just finished Collins St high rise office tower that was being sold by the liquidator at 40% of construction cost in 1993 AND no land value component! Spent 3 frustrating months being told by the same people who had been arguing with me about why we should be buying 'puts' on commercial property were now (poorer personally) and arguing that 'this is just the start'. An extremely large Industry fund ended up buying it and on-sold it for nearly double within 18 months.

Also during that recession - officially the worst since the Great Depression (in Australia at least) unemployment rose, post that the ratio of part-time to full-time job creation increased as well as the casualisation of the work force.

AKA all negatives for the 'avg' person paying off a mortgage at those high rates. Bob Carr even encourage people to default on paying their State Govt guaranteed fixed rate mortgages resulting in Aust Super funds losing a couple of hundred million dollars. Oh, those were the days!

 

[RAM]

Re: The totally off-topic thread

Nah, it reads average wage both times.

Oops! Back to the corner then...

 

[whatmeworry]

Re: The totally off-topic thread

Not just corporations, my Dad's best mate sold me a job in the public service in 1969 as a job for life! That ended in the 1980s, and my job was abolished, and I had to compete for new/changed positions, about 7 times before I left for the private sector in 1999. Since joining the private sector I have been "upgraded" without ever applying/re-applying for a position.

So yes, job security is not what it was. And of course this aligns somewhat with those various futurists who say most people will have 5 or 6 careers in the course of their working life.

Personally I think career and job gets confused here. I had something like 12 jobs in my Public Service career, across 6 agencies, but really only 4 careers (clerical, property management, ICT and Consultant). A number of commentators have said that young people move around a lot in the early years as they and their employers look for the best fit, but that this settles down once a person has settled into a chosen career. I wouldn't be surprised if corporations, SMEs and the public service will often provide a career for life for some, and not others depending on a range of variables, such as demand, technology etc.

Well with automation plenty of jobs will be gone soon.

 

[TomVexille]

Re: The totally off-topic thread

Oops! Back to the corner then...

Easily missed.

If you're ever down here in MEL I feel like I should be trying to pick your brain

 

[anat0l]

Re: The totally off-topic thread

Well with automation plenty of jobs will be gone soon.

Let's hope school teacher isn't very high on the priority list.

 

[medhead]

Re: The totally off-topic thread

Actually medhead property was not increasing faster than inflation from 1989 through to 1995 - it plateaued and fell in price during the 'recession we had to have'. Commercial property was hit worst. I tried to organise a consortium to buy a just finished Collins St high rise office tower that was being sold by the liquidator at 40% of construction cost in 1993 AND no land value component! Spent 3 frustrating months being told by the same people who had been arguing with me about why we should be buying 'puts' on commercial property were now (poorer personally) and arguing that 'this is just the start'. An extremely large Industry fund ended up buying it and on-sold it for nearly double within 18 months.

Also during that recession - officially the worst since the Great Depression (in Australia at least) unemployment rose, post that the ratio of part-time to full-time job creation increased as well as the casualisation of the work force.

AKA all negatives for the 'avg' person paying off a mortgage at those high rates. Bob Carr even encourage people to default on paying their State Govt guaranteed fixed rate mortgages resulting in Aust Super funds losing a couple of hundred million dollars. Oh, those were the days!

Good thing I didn't claim property was raising faster than inflation, then.

The official Cash rate WAS NOT 17% from 1989 to 1995. Perhaps Stagflation was a better option?

Gotta say: your example of a property doubling price in 18 months does exactly support your contention about property falling in price.

 

[love_the_life]

Re: The totally off-topic thread

Well in a conceivable future, teachers might also go the way of the dodo.......

Some time ago, when I was in education, we visited a school in QLD that was at the forefront of laptop use and remote learning. One of the questions asked of the principal was whether they felt that school would remain a physical entity with classrooms and teachers. The reply was they they felt they were moving away from that model and could easily see a situation where students did not attend in person. The traditional role of the teacher would change as well. As far as I know, however, this has not eventuated....yet.

 

[PDog]

Re: The totally off-topic thread

I watched my parents come close to losing their house after a business venture gone wrong, so owning my own place was a top priority for me, and bought a 1 bedroom apartment at age 24. It wasn't my ideal' location (& my now husband thought I should have been 'living for the moment, not working overtime every weekend to save a deposit) but gave me the security I wanted. And was great to leverage off for our first place together. I expect if I hadn't seen the stress & tension finances caused my parents, things would have been different for me.

I totally get the 'life's too short' position, my mum retired was diagnosed with cancer <100 days before she was due to retire with a mountain of things she'd put off till she had time. And that's my next goal- no way will I be working at 50!

I'm fortunate to be on a good salary, but have spent the weekend painting my house which we're selling next month (we moved to the country / 100kms from Melbourne almost 3 years ago). I'm going to call BS on the 'can't buy a house within 50, 60, 80kms of Melbourne for less than $700k, cause just 9kms out from the city, do I have an offer for you!!

 

[TomVexille]

Re: The totally off-topic thread

... I'm going to call BS on the 'can't buy a house within 50, 60, 80kms of Melbourne for less than $700k, cause just 9kms out from the city, do I have an offer for you!!

Feel free to PM me

 

[PDog]

Re: The totally off-topic thread

Feel free to PM me

Lol! Am guessing you're bayside by those prices & this place is west, right near Highpoint. But, it's 3 bed / 2bath and we'd be rapt with 600k.

And, on topic for this forum, when I used to live here I could jump in a cab at 6am, have time for a coffee in the lounge & still make the 7am flight to Brisbane!

 

[blackcat20]

Re: The totally off-topic thread

Lol! Am guessing you're bayside by those prices & this place is west, right near Highpoint. But, it's 3 bed / 2bath and we'd be rapt with 600k.

And, on topic for this forum, when I used to live here I could jump in a cab at 6am, have time for a coffee in the lounge & still make the 7am flight to Brisbane!

No, not anywhere near the bay. Just one of those "preferred school" districts.

 

[drron]

Re: The totally off-topic thread

I totally get the 'life's too short' position, my mum retired was diagnosed with cancer <100 days before she was due to retire with a mountain of things she'd put off till she had time. And that's my next goal- no way will I be working at 50!

Though don't get too hung up on the I have to retire at 50 idea.My goal was retire at 60 and I did.A few short weeks later I went back to work and nearly 10 years later am still working and loving it.Plus it enables me to do even more than I initially had on my bucket list.

 

[PDog]

Re: The totally off-topic thread

Though don't get too hung up on the I have to retire at 50 idea.My goal was retire at 60 and I did.A few short weeks later I went back to work and nearly 10 years later am still working and loving it.Plus it enables me to do even more than I initially had on my bucket list.

Not at 50, well before!!

kidding, you make a good point. I just want the option. I'm fortunate that I really like my job, but I like the idea of not working even more. We'll see

 

[dajop]

Re: The totally off-topic thread

Though don't get too hung up on the I have to retire at 50 idea.My goal was retire at 60 and I did.A few short weeks later I went back to work and nearly 10 years later am still working and loving it.Plus it enables me to do even more than I initially had on my bucket list.

I like the idea of perhaps by the time I'm 55 of relinquishing the corporate grind of working full time with just 4 weeks leave a year ... Not objecting to working per se but rather have more flexibility, and more than just four weeks off a year.

 

[JohnK]

Re: The totally off-topic thread

I totally get the 'life's too short' position, my mum retired was diagnosed with cancer <100 days before she was due to retire with a mountain of things she'd put off till she had time. And that's my next goal- no way will I be working at 50!

I wanted to retire at 45, then 50, then 55 and now 58+ and counting.

Had I sold my apartment in 2008 and not started working in Brisbane I wouldn't be further in debt trying to keep up. I'd be semi-retired and looking for a job but not needing to work. Oh well.

 

[CaptJCool]

Re: The totally off-topic thread

What an awesome insightful conversation this thread presents.

points that come to mine;
city populations have grown and the only space to build large-scale suburbs is further out. cheaper new land pressures up existing inner halo housing land prices and also in middle halo suburbs that once were outer suburbs...

Govt-run monopolies do charge fair prices, privatised competitors maximise profits....So by 1998 there was privatised property development, privatised real estate agents with streamlined qualifications, privatised-style state housing commissions, privatised negative geared rental properties, privatised banks, privatised mortgage broking and privatised financial services like SMSF and super fund managers - and https://internationaleducation.gov....-Data/Pages/InternationalStudentData2015.aspx
And generous redundancies cashing up a pile of company for life employees
so the pressure valve explodes. From 1998- 2004 housing prices explode �� and went crazy but this was "rent by the bed" to cater for international Uni student numbers doubling then some so this is the time of switchover from one income family affordability to borrow to two-incomes. The trend line switched because all these parties demanding ever increasing profits. Housing is now relatively unaffordable for average one-income households. What once was affordable on one income has shifted to being affordable on two incomes.

Age does have a significant effect on home ownership and borrowing capacity think DINK. If you have already paid out your 25 / 30 year mortgage then you probably started sometime before 1992. And after all if you're 30 today, you weren't even in the race to access pre-1998 house prices. Even with 17% interest rates DINKs could service loans of $100,000 1301.0 - Year Book Australia, 2012
think one income 4 kids, little contraception, non-working wives, no divorce morphing to one income 2 kids, two incomes adult kids. Household size has shrunk.
Could polygamy of 2 husbands (one working, one house-husband) and one wife bring 3 or more incomes to a house-hold ? And I'm still wondering what minus one child means to a household, since of course we got to limits of 2.incomes no kids.... And yes this might be a bad joke....

Now today, it's an income-tax free life for all those over 60 who no longer work (except former public servants) This study gives the best insight as to how this situation is affecting government expenditure especially for those who already have Superannuation Policy for Post-Retirement - Productivity Commission

 

[cove]

Re: The totally off-topic thread

I have not looked at the latest census questions that we will be completing this month but hopefully it will help Australia work thru the major problems that have developed in the last decade.
We will be in New York on the census date.
My eldest son bought a three bedroom , 2 bathroom unit near Perth in the $500,000 to $600,000 range and walks to work most days which takes about 15 minutes.

 

[drron]

Re: The totally off-topic thread

So just when were there Government run real estate agencies,negative gearing,mortgage brokers etc.Most banks in Australia were privately run over our history and until recently SMSFs couldn't borrow to buy housing so the competition from that source was minimal.

Just maybe fractional reserve banking and money supply might be factors-
https://en.wikipedia.org/wiki/Fractional-reserve_banking

A graph from there re money supply in the US-

Just note that the velocity of money supply started to take off in 1971 when Nixon abolished the gold standard.In 1977 the Community Reinvestment act was signed by Carter encouraging banks to loan to less privileged communities.In the 90s there were several amendments to the act particularly in 1995 and 1999 which accelerated the lending to subprime borrowers and we know where that led.Yes the GFC but also to accelerating house prices.