This bubble has been going on for such a long time that many have and are in the position to logically say that on a long term basis I know that I am overpaying for housing but I am prepared to spend my discretionary cash on it.
For me the reason to do that was because I was getting old(er) and more importantly, so were my kids. I was ready to buy in 2007 just as the taxis started turning up at opens in Brisbane, and we went into a holding pattern for 4 years.
And lets be clear, about the only possible scenario that makes waiting to buy a home to actually raise kids in that are already on this earth and growing (quickly) is the relatively quick crash scenario… A 40% fall over 20 years might mean that 30 years olds might then buy a home at a reasonable price, but what about all of the families that have foregone buying a family home in the mean time because pricing was considered suboptimal…
For me, and this is a personal view, I don’t see much emotional attachment to buying your own home if its not the one that you raise your family in and hopefully grow old in (for that reason I see people who view themselves on a property ladder similarly to housing investors/speculators)
If you are not of an emotional/sentimental mindset, then buying property in most markets in Australia ceased to be a reasonable allocation of your capital (both present and future) a long, long time ago.
But for those of us who are sentimental – and I know from my time blogging that many who have stayed out of the market certainly have a battle between their logical financial mindset and their emotions/sentiment – many will consider that a couple of hundred K less in retirement is a worthwhile trade for a home in which you lived for 30 or 40 years and raised your family (and their family).
(And here I will also say that most Australian cities over the last few years have experienced conditions where it was possible to buy smart and minimise the long term impact on the family’s long term financial resources)
Everybody has different priorities, and I am sure many who abstain from buying a home because it is not priced optimally according to long term relationships, would intentionally lose several hundred K in their lifetime in certain depreciation on other discretionary spends such as new cars.
So, no, I am glad that I put down my considerable deposit on buying a family home and to this point my market has moved fairly much as I thought it would (i.e. flatlined).
My only concern is that the mania in Sydney and Melbourne will spread and engulf my home market… I would much rather have a quiet grind out than have the roller coaster.
But neither scenario would/could make me doubt my decision… For us, there are more important things in life than money (what’s important is that it is used to improve our lives not leave us hostage to account balances – either mortgages or savings accounts)
Its worth reflecting that while prices remained expensive by many measures, the Sydney housing market was considerably weaker for a long period after 2004 (and that presented an opportunity to “buy smart” – research extensively to pick up a property which is underpriced relative to the market and will outperform over the long term of 30 to 40 years since this is a forever home we are discussing – that probably means an older home on a relatively large block).
A few years ago I read comments by another prominent blogger (at the time) who was a specialist medico who preferred to rent multi-million dollar houses in Sydney than buy because he felt prices were so out of whack that it was a waste of money… He wasn’t going to buy until prices reached 3x income again… (And he did mention that his children questioned him on why he did not buy the family home as they would have preferred it to shifting more regularly)… At the same time he openly admitted he liked to frequently buy new expensive cars and Persian rugs.
I understand as well as anyone that it is really difficult to commit to buying a home when just 10 years earlier your cohort and others had the opportunity to do so at less than half the inflation-adjusted price… I just think its really important not to concentrate on what once was, and lost opportunities (for whatever reason, noble or otherwise), and thus draw a relatively arbitrary, often ego-related, line in the sand, rather than objectively assess where things stand and what is the best course of action for yourself and your family… Sure, if there is a crash in the next few years prices might reach an arbitrary line in the sand and abstainers may have the opportunity to buy within a time frame which suits their personal circumstances… But it is important to objectively consider what is the likelihood of that.
Even Steve Keen’s best assessment has consistently been for a Japanese style deflation… That doesn’t really help (ie save them much) anyone whose personal circumstances dictate that they should buy a home over the next say 5 years (ie they have young kids)… So add together the probability of anything above a sharp crash (i.e. I think for Sydney we can totally discount sharp price rises from here, so add probability of relatively stable prices to probability of slightly falling prices), and think about how that works with you… This is what I actually did in 2011 before I bought in Brisbane – I plotted a graph of historical prices plus several straight line forecasts for various % p.a. growth rates, ascribed my view on the probabilities for each of those growth rates, and calculated the various risk-return profiles (a lot of it will be subjective of course not least because a lot of the rewards are subjective)… It was an interesting exercise for me and helped me greatly to objectively think through the decision… RPData says that Brisbane house prices are still 5% below their peak in nominal pricing (around 15% in real terms), and this is bang in line with my central forecast.
I should say that earlier I ascribed a higher probability to sharper crash/correction, but when the federal Govt. stepped in to arrest it in 2008/9, which in Brisbane’s case was underway before the GFC got into stride, and thus deciding that the powers that be would manage any bust as a matter of maintaining stability, and had the firepower to do so, I reduced the probabilities I ascribed to a sharp correction and increased the probability of a slow melt/grind out (slowly falling prices to relatively flat in nominal terms)… And I will say that I do believe that now is quite a reasonable time for a rational buyer to buy a “forever” home in Brisbane, and feel that FHBs (who currently make up only 6% of buyers in this market at present) may be missing an opportunity to do so (especially if we do end up on that roller coaster – note because Brisbane has stayed relatively stable for such a long period of time – real prices are around 2007 prices – I think that if prices take off from here under the weight of southern speculators, any sharp correction would probably stop out at around these prices).
I agree that now is not a good time for a rational buyer to buy a “forever” home in Sydney (or probably Melbourne).. My only point is that similarly a rational buyer will not wait indefinitely for a “crash”, and that anybody that was in a position to buy their “forever” home in Sydney, for example, before this current run up in pricing needs to seriously and objectively consider whether they are being as rational about the decision as they perceive themselves to be, or whether they are allowing other deleterious emotions (pride, ego, jealousy, anger?) to influence them, and then reconsider their strategy going forward based on that and the current situation.
It is a very personal decision… But it is important that in making it one understands which emotions are desirable to have in the equation, and which ones are not… Only then is it really possible to decide based on genuine risks and rewards, whether it be written down and worked through or done intuitively/subconsciously.
Buy if you can if you feel that now is the time to do so.
But for a growing number, the expense is making buying increasingly difficult and there is no reason that many potential first-timers who could have made mortgage payments without great difficulty back when I bought cannot be forced out of the market altogether by those who benefit from buying and selling more homes than they can live in.
We have almost exhausted monetary policy as an avenue to allow average newcomers to buy through making borrowing money cheap enough to allow them to service the size debts that would have been unthinkable when I bought. What new measures will be put in place to allow the bubble to keep inflating?
Read Brett Egerton's forecasts for Brisbane in July 2008. http://www.geocities.ws/homes4aussies/080708paper.pdf (his own site): There he forecast Brisbane house prices to fall 17% between March 2008 and December 2009 and fall 30% by September 2011. According to the ABS Brisbane prices have never been lower than they were in March 2008.
...I intend to take on very large short positions on Australian house prices in anticipation of significant price falls. .... In this forecast house prices will retreat around 35% from peak prices and then grind upward with inflation.
Two years later he bought a house in Brisbane, months after spreading 20,000 crash/bubble leaflets around Brisbane.
Read Brett Egerton's forecasts for Brisbane in July 2008. http://www.geocities.ws/homes4aussies/080708paper.pdf (his own site): There he forecast Brisbane house prices to fall 17% between March 2008 and December 2009 and fall 30% by September 2011. According to the ABS Brisbane prices have never been lower than they were in March 2008.
Anyone posting something like this as a guest is full of shit. Think of the psychology behind it, if you were guest 'Brett' and you capitulated, brought a home and content with you decision why in the fuck would you post something so detailed on here about it. People post here because they have vested interests either way, as a bear once you purchase I would think basic psychology would lead you to stop posting here unless converted to a bull, as a regular OO you wouldn't care about this site. And vice versa, if you are a bull who sells down the portfolio or gets rid of all your IP's your interest in this site would be almost non existent.
This post is from some spanker like castle, shadow, Mike, Bardon etc and it's fucking embarrassing grown men would engage in this low brow inflammatory behaviour. Any respect you have for the opposing side fades when you contextualise posts like these.
Well this month anyway. But a lot can happen in 30 years can't it peter.
A lot of people, in fact a vast majority of people, bought into IT stocks in the final 2 years before the blowoff top. They had watched the price of IT shares rise for a decade nearly and felt they had missed out, so they rushed in, against all caution. But that is the very nature of bubbles isn't it? It's a typical trait of a bubble in fact.
When ever you see a vast majority of investors rushing into a market you know it is reaching a blowoff top when prices will collapse. You can't predict the actual top itself, but you know it's coming. With 50% of Australian homes being sold to investors using the extreme leverage of IO loans we can be assured we are in the blowoff top phase. Anyone buying a home now, for any reason, had better be prepared to suffer higher interest rates and a possible big revaluation downward.
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