Australian Housing Affordability Discussion

[cove]

No one knows where/when interest rates will move so locking up on a fixed rate may be ok. If you lock a bit of the debt you do protect yourself from rates rising sharply.

 

[whatmeworry]

Lately been hearing ads on Melbourne radio for apartments with a low deposit (IIRC).

Up the thread someone mentioned these type of ads playing in Perth. Tipping point could be coming soon.

 

[ComeFlyWithMe]

I think the mistake the naysayers are making about the property market is considering the whole of Australia as one housing market. Different cities and regional centres have entirely different profiles from a property perspective. There will be falls, there will be stagnation, but there will also be rises. Overall it might fall but the smart investors know where the quality stock is located.

I may have to eat my hat but I seriously doubt anything within a 10km radius of Sydney CBD will fall. Inner CBD apartments maybe the one exclusion, although there appear to be no shortage of our neighbours in Asia who want to live there too.

 

[RAM]

I think the mistake the naysayers are making about the property market is considering the whole of Australia as one housing market. Different cities and regional centres have entirely different profiles from a property perspective. There will be falls, there will be stagnation, but there will also be rises. Overall it might fall but the smart investors know where the quality stock is located.

I may have to eat my hat but I seriously doubt anything within a 10km radius of Sydney CBD will fall. Inner CBD apartments maybe the one exclusion, although there appear to be no shortage of our neighbours in Asia who want to live there too.

Sydney has seen within 5km, within 10 or 20 or 30 or 60km fall in price regularly since 1980 (ok - several times)

Prices peaked in early 80 and then plateaued/fell through until late 1987 - after inflation prices were down (real terms) more than 70%.

Then within 20 km or so they trebled from Oct 87 through to late 89/early 90 - then they started falling. New builds out west started the falls which impacted every area. Bottomed around May/June 1994. Slow pick-up 95/96 then selective falls during Asia crisis (did Chatswood get hit or what).

A couple more ups and downs through to 2010/11 when latest climb began.

You can see some of this by looking at the NSW Valuer General's database. Revalued every 5 years (I recall) and you'll see some 5 yearly values falling (was so good in last rates reset to have that fall in land value. Not so happy this time around...).

If and when the bubble pops (as the US, UK have and now seemingly Canada is) leverage works even worse on the downside. A 10% fall wipes out many purchasers' equity (purchases within the last 2 years after adding in stamp duty hit and 2 years worth of mortgage interest payments).

Just remember the Rules of Bubbles - especially - "Bubbles go for longer than nearly anyone expects".

and don't forget "Bubbles always end unexpectedly (and very inconveniently)."

As for 'no shortage' - only works on the way up. Definite shortage of buyers once a market tips over - especially as banks then begin a race to see whocan tighten their lending criteria the most.

Noteworthy example was Collins St just completed but totally unlet prime CBD office building sold for 40% of build cost (zero land value) in late 1994. I would have been able to retire if only the two industry funds I was speaking with didn't get cold feet. A totally different industry fund bought it and flipped it within 3-4 years at treble purchase cost. All I was after was a .75% arrangers fee...

 

[TomVexille]

When driving in California last week, on radio a lender was pushing the fact that "interest rates can't stay low forever" and proceeded to offer a 15 year loan fixed at 2.75% ("terms and conditions apply") which seems like a pretty good deal. They must be banking on interest rates staying low for at least 15 years though.

US Bank is offering a 30 year fixed rate mortgage at 3.75%. Their 15 year fixed is 3.125%.

 

[cove]

Well Tom, that is the bank we use in California. We haven't borrowed in the US.
I saw HSBC and IMB Bank both have money in Australia with a 3 as the first number in some house mortgages.
Others are down there too.

 

[TomVexille]

Definitely some good rates cove, the difference is that nobody in Australia will sell me a 30 year fixed with a 3 in front of it.

 

[cove]

Well TV you seem to have CE as an adviser in Melbourne so it would be difficult to do better than that.
Many of us worked long hours and saved hard in the good old days but let me assure you that these will be known as the good old days too some time into the future.

 

[Steady]

but let me assure you that these will be known as the good old days too some time into the future.

Wise words cove

 

[Flashback]

Well Tom, that is the bank we use in California. We haven't borrowed in the US.
I saw HSBC and IMB Bank both have money in Australia with a 3 as the first number in some house mortgages.
Others are down there too.

Our mortgage deal was just about to come to an end, so just locked in a new rate of 1.46%. The good days indeed!

 

[cove]

Great deal Flashback. London is still a construction site.
We prefer the zero rate and we remember to insure our home now there is no mortgage.
I was looking up Phil Collins tickets on stubhub as Mrscove loves London.

 

[Flashback]

Great deal Flashback. London is still a construction site.
We prefer the zero rate and we remember to insure our home now there is no mortgage.
I was looking up Phil Collins tickets on stubhub as Mrscove loves London.

I should add also that it has no fees attached to it, which for a lot of the really low rate deals is uncommon. For no fees you're generally looking at 2% and up so that was a win.

 

[cove]

In Australia our 4 main banks want 2.0% margin as an average on all of the mortgages so they can make great profits on home loans.
1.46% free of other fees sounds really good.

 

[CaptJCool]

The arguments put forward on number of people who have voluntarily chosen to leverage themselves to the hilt (>30% of HDI) as the indicator really demonstrates a lack of personal budgeting acumen +/or eyes bigger than income.

Due to the extended period without a recession these relatively over-extended borrowers cover multiple groups (including some baby boomers) not just the latest 'generation'. There is plenty of material around describing the recently retired or soon to retire who still have substantial mortgages.

Keeping up with the Jone's is a personal choice as is having 2 or more bathrooms or ensuites etc.

Making a poor financial choice is a personal problem noy an excuse to allow vested interests to profit at the expense of the broader community.

Ah "where I live and the size of the 'home'" has become a case of how mucha household earns (one or more incomes)

back in the day, new estates of today hours from the CBD were farming land, and
QUARTER acre blocks were 'house and garden". Urban infill has put an end to that....original owners took the free profit.

oh oh and air value WAS zero, but now masquerades as high-rise luxury boats. (Penthouses)
When there's an over-supply of luxury boats, and no holiday-makers or re-sale options then resale prices evaporates.
the 528 cranes tells me this is where it's heading.


Mirvac sales to overseas buyers - ABC News (Australian Broadcasting Corporation)
i took the view our offshore friends were so used to cramming families in small Hong Kong or shanghai apartments that Aussie shoeboxes were a big step up in terms of space and family sizes. And for domestic people, it was a case of getting close to the office not the long commute to the farm



millienials have a 30 year mortgage ahead of them. AND future promotions and annual wage rises (even if subdued) and bonuses. And the years of living TOGETHER to afford to pay it off.

Baby boomers are generally at the limits of career progression already or finished active employment and on the superannuation despite being midstream on a mortgage payment plan. I'm fascinated by the idea any of them "will downsize".
Just think how tough it was on one income and stay at home mums and small-scale child endowment to actually pay it off the first time. And besides, if you do qualify for a partial age pension, why would you sell the "crowning jewels"?


Mr Meriton made an Interesting argument

Harry Triguboff: Billionaire property developer on building the Meriton empire and housing affordability - ABC News (Australian Broadcasting Corporation)
PHOTO: Mr Triguboff says he understands the unease young people are experiencing with job and housing instability.
[h=2]'I backed the women and they bought the units'[/h]Mr Triguboff said he has always understood what people wanted.
"I watched them and I tried to understand what made sense," he said.
"So I saw these young women here when I started to build and they got very low wages and I understood that the only way they could figure out security was to have a home.
"I could see it in their eyes."
Mr Triguboff succeeded by building apartments that were cheaper than cottages or houses, and were closer to the city.
"So I backed the winners, I backed the women and they bought the units," he said.

I tried all my life to make housing affordable. The more affordable the house, the more money I make.

Harry Triguboff
​

"The newspapers were always against me in the beginning because they thought I was depriving people of what they wanted.
"If a person pays everything he has and borrows everything he can to have an apartment, then I was correct and they were wrong."



One Plus One: Harry Triguboff - One Plus One - ABC News (Australian Broadcasting Corporation)

 

[Warks]

Ah, dear Harry! Who has contributed more to the beautification of Sydney?

 

[Rigs]

In Australia our 4 main banks want 2.0% margin as an average on all of the mortgages so they can make great profits on home loans.
1.46% free of other fees sounds really good.

I am annoyed at that. My rate is currently around 3.6 and I'm reasonably content with it. The good thing about having rates higher than the rest of the world is that we have some fat to chop in the event of a downturn.

 

[Rigs]

"Contribution" could be measured in many ways - all of which would show that previous generations have served their country 1,000s of times more than the current generation..

So I will take that as an apology?

"You seem to be the one stereotyping anyone who suggests housing affordability is not anywhere near the worst in modern times - as a baby boomer..

Not really. I busted my biscuit over a stereotype laced rant from someone sledging millennials as being the core of the affordability problem. The reality is that older generations dominate the political spectrum at the moment (due mostly to numbers). The problem with that is a lack of empathy between generations and cold realities of economic self-interest. Boomers honestly don't seem to understand the situation contemporary young professionals (which is why they generally can't identify pensions as the largest outflow of welfare).

Making a poor financial choice is a personal problem noy an excuse to allow vested interests to profit at the expense of the broader community.

I would agree with this statement but dispute the driver. The problem is not people over leveraging its a market that essentially forces those who want to enter to do so. I personally refuse to do this. I can afford to buy property in the city of Sydney but won't because a) I think the properties are over valued b) have zero interest in transferring more of my wealth to the older generation through a windfall they didn't earn and c) it honestly isn't worth tying up the capital into this market as the amount required outweighs the risk. The result isn't me being irrationally over leveraged, its me staying out of the market and placing my capital into others.

 

[drron]

I agree with much of what you say Rigs but it doesn't help complaining about the attitude of older pax to Millennials and then unloading on those older.
But we went through the same.In the words of Mike Rutherford-

Every generation
Blames the one before
And all of their frustrations
Come beating on your door
-
-
-
So we open up a quarrel
Between the present and the past
We only sacrifice the future
It's the bitterness that lasts

The problem is that there are always unexpected outcomes when you try and fix a problem.Such is the case with the pension changes recently announced.Primary home is still quarantined so why downsize when you lose your pension doing so.And our treasurer says supply is the problem.Oh well.....

 

[Rigs]

Rigs but it doesn't help complaining about the attitude of older pax to Millennials and then unloading on those older.

I agree. I could have been more diplomatic but I mirrored the post I responded to.

The problem is that there are always unexpected outcomes when you try and fix a problem.Such is the case with the pension changes recently announced.Primary home is still quarantined so why downsize when you lose your pension doing so.And our treasurer says supply is the problem.Oh well.....

Have to take issue with this. Houses are exempt not because the government tried to fix a greater problem but because those on pensions act in their own interest and prefer it the way it is. This when we have over $200bn in unfunded liability, mostly in pensions and it grows by $4-5bn a year (Explainer: what are unfunded liabilities?). Essentially the boomer generation sits on large amounts of untaxed assets, hoards it for a rainy day or makes a giant windfall, then passes the unfunded liability onto future generations. When we are wondering why our housing market is out of alignment with affordability, this is probably one of the key drivers as to why.

I agree we need a pension system but it was intended to keep people from destitution. Right now its a huge (and increasing) outlay in funds keeping older generations in a much higher standard of living than it was designed to support.

The reason I chose more forceful prose is due to the reality that the previous generation honestly thinks it spends more money in welfare on future generations than it does on itself.

 

[JohnK]

I am annoyed at that. My rate is currently around 3.6 and I'm reasonably content with it.

Mine is 5.49%. I didn't know and I just checked.

There's obviously something wrong me and I should care and take greater interest in getting a lower interest rate but I don't care. It's easy money to switch but needs time invested.