the housing dream is so strong sometimes I actually wish for Mr Abbott to become PM so there is a big slash and burn and house prices drop

Just so long as you don’t move into my street. We’re not big on undesirable houso types trying to better their situations, and won’t hesitate to write to the Minister.

LSWCHP said :

devils_advocate said :

I didn’t make myself clear, but there’s a bunch of things going on in Australia and internationally that make me think we’re not heading into a time of unlimited prosperity.

For example…

The Eurozone appears to be heading towards implosion, starting with Greece and the other countries around the Med. Peak oil resulting in a hit to energy supplies. Climate change (eg Superstorm Sandy) affecting economic outcomes worldwide. Slowdown in the Chinese economy affecting the mining boom in Australia with follow on effects for the rest of the country. Mitt Romney and the Republican loony warmongers going gangbusters in the US, potentially leading to military strikes against Iran and large scale warfare in the Muddle East, resulting in a further hit to oil supplies. Potential biffo between China and other countries around the resource rich areas in the South China sea. Tony Abbot and his crew getting elected and smashing the APS in Canberra etc etc.

On the other hand, the positive news is…ermm…ahh….can someone help me out here?

I understand that economic conditions globally aren’t fantastic, but I was more referring to housing prices and what impact they have on people’s decisions or lives such that they should be “battening down hatches” which I take to mean a reference to a storm-like disturbance or upheaval.

Think about existing homeowners. If the paper value of their house decreases, what actual impact on their day-to-day lives does this have? Sure they have the annoying realisation that they could have been paying less on their mortgage than they otherwise would be, but life goes on as usual – in fact, the drop in house prices and deterioration in economic conditions more generally probably means the RBA will cut interest rates (more on that in a second).

Sure, homeowners could lose their job and therefore their house, but losing one’s job is a problem in itself, not symptomatic of house price reductions per se. Although I suppose that if you are “underwater” on your mortgage it could make a shitty situation incrementally worse. Again, in canberra, the risk of outstanding loan value > house value is small, the risk of losing one’s job (and not being able to find another) is, at present, small, and the risk of both these things together is smaller still.

Again, incomes are high and stable (for now). Canberra is somewhat better insulated than most places from housing price drops.

Finally, in the past few years, despite the RBA Governor’s public concerns regarding the rise of house prices and private debt in Australia, I have been absolutely astonished at what lengths the RBA will go to in propping up housing prices. They seem to not be content with engineering a soft landing; but rather obsessed with ensuring house prices don’t soften at all. It’s really quite amazing to me and I think probably a bit short sighted. But it is an important factor driving the speed and magnitude of house price declines.

And, of course, if house prices do continue to drop slowly over time, this will at the margins change the decision-making and risk profile of people who, at present, can’t *quite* get into home ownership. Which from their perspective is probably a good thing.

The only potential losers i see out of this are investors who purchased houses relatively recently (last 5 years or so) based not on the NPV of future income streams, but anticipated capital gains, which to me is the definition of speculative. These people took their risk, well-advised or not, and I have little sympathy for them. Also, the social fallout for an individual of taking a loss (paper or otherwise) on their 4th or 5th IP is probably less than that for the individual who resents being frozen out of the market altogether. In net terms there is likely to be minimal social cost or even a small social gain arising out of deflation in house prices.

So in summary, I think life (at least in Canberra) will pretty much go on as normal, maybe some change in tone of boring dinner party conversation, but certainly not any major social upheaval that might warrant any hatches being battened.

Wouldn’t dream of it, Woody. God forbid.

devils_advocate said :

So in summary, I think life (at least in Canberra) will pretty much go on as normal, maybe some change in tone of boring dinner party conversation, but certainly not any major social upheaval that might warrant any hatches being battened.

Agreed. Some of us[*] bought a house because we want a place of our own to live in instead of paying $25K a year to rent someone else’s – not for speculative investment purposes where a 10% drop in value causes us financial disaster.

* – Or am I the only one?

el said :

devils_advocate said :

So in summary, I think life (at least in Canberra) will pretty much go on as normal, maybe some change in tone of boring dinner party conversation, but certainly not any major social upheaval that might warrant any hatches being battened.

Agreed. Some of us[*] bought a house because we want a place of our own to live in instead of paying $25K a year to rent someone else’s – not for speculative investment purposes where a 10% drop in value causes us financial disaster.

* – Or am I the only one?

Everybody needs a place to live. I’ve rented and didn’t like it, so my wife and I bought a house and now we own it outright. Decisions like that involve a lot more than the money. For example, I particularly didn’t like undergoing inspections by my sleazy landlord

On the other hand, friends of ours are hugely geared and “own” five investment properties..The slow melt in house prices is really hurting them, and its people in their situation that I think will be feeling some pain over the coming years.

If you want a house to live in just to keep the rain off your head, rather than as a speculative asset then go for it.

Zultan said :

It cost me $26,000 to rent a house for my family to live last year in Canberra. So I figure now that I’ve bought a house I can lose $26,000 (give or take) each year before I’ve actually lost out on anything.

well, no not really. only if:
1. you didn’t take out a loan and hence aren’t paying interest
2. you had your 100% deposit in a no interest savings account and thus are not losing potential interest
3. your house requires no repairs
4. ACTEWAGL waives your water base fees (you only have to pay for usage when renting, not basic connection fees)
5. the act likes you enough to not ask you to pay rates.

if all of those things are true, then yes, you’re golden.

LSWCHP said “On the other hand, friends of ours are hugely geared and “own” five investment properties..The slow melt in house prices is really hurting them, and its people in their situation that I think will be feeling some pain over the coming years.”

I’m not sure that their pain is the same as for people who can’t even get into the market! Such people could always sell one of their several properties if issues arise.

I say again, lance that damn housing boil!

Hopefully they crash 50% and bankrupt a lot of investors. That way young families will be able to afford a house to live in again.

Look at it this way – every $100,000 that a property scammer makes is an extra $100,000 some poor bloody working class family will have to come up with just for a roof over their heads.

urchin said :

Zultan said :

It cost me $26,000 to rent a house for my family to live last year in Canberra. So I figure now that I’ve bought a house I can lose $26,000 (give or take) each year before I’ve actually lost out on anything.

well, no not really. only if:
1. you didn’t take out a loan and hence aren’t paying interest
2. you had your 100% deposit in a no interest savings account and thus are not losing potential interest
3. your house requires no repairs
4. ACTEWAGL waives your water base fees (you only have to pay for usage when renting, not basic connection fees)
5. the act likes you enough to not ask you to pay rates.

if all of those things are true, then yes, you’re golden.

Renting is also fantastic, provided that:

1) you are able to get your rent fixed at (say) 6 per cent of the value of the property for as many years as you want; and
2) after 25 years of paying rent at this fixed rate, the landlord says you can stop paying rent altogether and you now own the place and its associated income stream.

devils_advocate said :

urchin said :

Zultan said :

It cost me $26,000 to rent a house for my family to live last year in Canberra. So I figure now that I’ve bought a house I can lose $26,000 (give or take) each year before I’ve actually lost out on anything.

well, no not really. only if:
1. you didn’t take out a loan and hence aren’t paying interest
2. you had your 100% deposit in a no interest savings account and thus are not losing potential interest
3. your house requires no repairs
4. ACTEWAGL waives your water base fees (you only have to pay for usage when renting, not basic connection fees)
5. the act likes you enough to not ask you to pay rates.

if all of those things are true, then yes, you’re golden.

Renting is also fantastic, provided that:

1) you are able to get your rent fixed at (say) 6 per cent of the value of the property for as many years as you want; and
2) after 25 years of paying rent at this fixed rate, the landlord says you can stop paying rent altogether and you now own the place and its associated income stream.

6%?! no thank you. i pay about 3.6% at the moment & interest from savings covers more than half of of my rent. nor do i plan on being in canberra 25 years from now.

buying makes sense in some situations, renting is better in others. given the enormous gap between what it costs to rent vs buy equivalent houses and the direction that prices are heading, i don’t see any real rush to buy. nor do a lot of other people, it seems, as transaction volumes are steadily declining.

devils_advocate said :

Renting is also fantastic, provided that:

1) you are able to get your rent fixed at (say) 6 per cent of the value of the property for as many years as you want; and
2) after 25 years of paying rent at this fixed rate, the landlord says you can stop paying rent altogether and you now own the place and its associated income stream.

I love these ‘comparisons’ that implicitly assume that either:
A: cost of rent = cost of mortgage
or
B: the difference between what it costs to rent vs pay a jumbo mortgage just disappears into thin air.

Thought I might poke this dormant thread given that the ABS has just released their house price index results for the September quarter.

According to the ABS house prices in Canberra dropped 1.1% in the quarter which means since 1986 we’ve had three periods of house price changes:

From mid-1986 to the September quarter of 2000 house prices rose in real terms 0.5% pa.
September 2000 to March 2004 16% pa.
March 2004 to date 1% pa.

What squeezes my pips is the way the real estate spruikers keep suggesting that the once-only shift in lending practices/attitudes to debt/tax laws can happen again in the future.

davo101 said :

What squeezes my pips is the way the real estate spruikers keep suggesting that the once-only shift in lending practices/attitudes to debt/tax laws can happen again in the future.

But it can happen again…

in the opposite direction.